UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended March 31, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from
to
Commission
file number 001-11967
ASTORIA
FINANCIAL CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
11-3170868
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification
|
incorporation or organization)
|
Number)
|
|
|
One Astoria Federal Plaza, Lake Success, New York
|
11042-1085
|
(Address of principal executive offices)
|
(Zip Code)
|
(516)
327-3000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all the reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
x
NO
¨
Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES
¨
NO
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
these items are defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer
x
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller
reporting company
¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES
¨
NO
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Classes of Common Stock
|
|
Number of Shares Outstanding, April 30, 2009
|
|
|
|
.01 Par Value
|
|
97,058,454
|
PART
I — FINANCIAL INFORMATION
|
|
Page
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|
|
Item
1.
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Financial
Statements (Unaudited):
|
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|
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PART
II — OTHER INFORMATION
|
|
|
|
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|
|
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|
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|
|
|
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|
|
|
|
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|
|
|
|
Consolidated Statements of Financial
Condition
|
|
(Unaudited)
|
|
|
|
|
|
|
At
|
|
|
At
|
|
(In
Thousands, Except Share Data)
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
146,697
|
|
|
$
|
76,233
|
|
Repurchase
agreements
|
|
|
38,050
|
|
|
|
24,060
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
1,067,374
|
|
|
|
1,017,769
|
|
Unencumbered
|
|
|
178,551
|
|
|
|
372,671
|
|
|
|
|
1,245,925
|
|
|
|
1,390,440
|
|
Held-to-maturity
securities, fair value of $2,466,064 and $2,643,955,
respectively:
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
1,934,668
|
|
|
|
2,204,289
|
|
Unencumbered
|
|
|
502,057
|
|
|
|
442,573
|
|
|
|
|
2,436,725
|
|
|
|
2,646,862
|
|
Federal
Home Loan Bank of New York stock, at cost
|
|
|
183,547
|
|
|
|
211,900
|
|
Loans
held-for-sale, net
|
|
|
41,850
|
|
|
|
5,272
|
|
Loans
receivable:
|
|
|
|
|
|
|
|
|
Mortgage
loans, net
|
|
|
16,083,635
|
|
|
|
16,372,383
|
|
Consumer
and other loans, net
|
|
|
338,224
|
|
|
|
340,061
|
|
|
|
|
16,421,859
|
|
|
|
16,712,444
|
|
Allowance
for loan losses
|
|
|
(149,187
|
)
|
|
|
(119,029
|
)
|
Loans
receivable, net
|
|
|
16,272,672
|
|
|
|
16,593,415
|
|
Mortgage
servicing rights, net
|
|
|
7,656
|
|
|
|
8,216
|
|
Accrued
interest receivable
|
|
|
78,006
|
|
|
|
79,589
|
|
Premises
and equipment, net
|
|
|
139,210
|
|
|
|
139,828
|
|
Goodwill
|
|
|
185,151
|
|
|
|
185,151
|
|
Bank
owned life insurance
|
|
|
399,025
|
|
|
|
401,280
|
|
Other
assets
|
|
|
230,267
|
|
|
|
219,865
|
|
Total
assets
|
|
$
|
21,404,781
|
|
|
$
|
21,982,111
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
1,890,372
|
|
|
$
|
1,832,790
|
|
Money
market
|
|
|
308,352
|
|
|
|
289,135
|
|
NOW
and demand deposit
|
|
|
1,529,856
|
|
|
|
1,466,916
|
|
Liquid
certificates of deposit
|
|
|
977,387
|
|
|
|
981,733
|
|
Certificates
of deposit
|
|
|
8,923,211
|
|
|
|
8,909,350
|
|
Total
deposits
|
|
|
13,629,178
|
|
|
|
13,479,924
|
|
Reverse
repurchase agreements
|
|
|
2,650,000
|
|
|
|
2,850,000
|
|
Federal
Home Loan Bank of New York advances
|
|
|
3,110,000
|
|
|
|
3,738,000
|
|
Other
borrowings, net
|
|
|
377,423
|
|
|
|
377,274
|
|
Mortgage
escrow funds
|
|
|
158,505
|
|
|
|
133,656
|
|
Accrued
expenses and other liabilities
|
|
|
278,864
|
|
|
|
221,488
|
|
Total
liabilities
|
|
|
20,203,970
|
|
|
|
20,800,342
|
|
|
|
|
|
|
|
|
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|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value (5,000,000 shares authorized; none issued and
outstanding)
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value (200,000,000 shares authorized; 166,494,888 shares
issued; and 97,058,454 and
95,881,132
shares outstanding, respectively)
|
|
|
1,665
|
|
|
|
1,665
|
|
Additional
paid-in capital
|
|
|
848,826
|
|
|
|
856,021
|
|
Retained
earnings
|
|
|
1,846,428
|
|
|
|
1,864,257
|
|
Treasury
stock (69,436,434 and 70,613,756 shares, at cost,
respectively)
|
|
|
(1,434,881
|
)
|
|
|
(1,459,211
|
)
|
Accumulated
other comprehensive loss
|
|
|
(43,188
|
)
|
|
|
(61,865
|
)
|
Unallocated
common stock held by ESOP (4,923,564 and 5,212,668 shares,
respectively)
|
|
|
(18,039
|
)
|
|
|
(19,098
|
)
|
Total
stockholders' equity
|
|
|
1,200,811
|
|
|
|
1,181,769
|
|
Total
liabilities and stockholders' equity
|
|
$
|
21,404,781
|
|
|
$
|
21,982,111
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
|
|
For the Three Months Ended March 31,
|
|
(In Thousands, Except Share Data)
|
|
2009
|
|
|
2008
|
|
Interest
income:
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
162,940
|
|
|
$
|
153,598
|
|
Multi-family,
commercial real estate and construction
|
|
|
56,614
|
|
|
|
60,315
|
|
Consumer
and other loans
|
|
|
2,678
|
|
|
|
5,432
|
|
Mortgage-backed
and other securities
|
|
|
43,104
|
|
|
|
47,893
|
|
Federal
funds sold and repurchase agreements
|
|
|
16
|
|
|
|
636
|
|
Federal
Home Loan Bank of New York stock
|
|
|
1,686
|
|
|
|
4,222
|
|
Total
interest income
|
|
|
267,038
|
|
|
|
272,096
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
90,760
|
|
|
|
110,203
|
|
Borrowings
|
|
|
64,601
|
|
|
|
81,107
|
|
Total
interest expense
|
|
|
155,361
|
|
|
|
191,310
|
|
Net
interest income
|
|
|
111,677
|
|
|
|
80,786
|
|
Provision
for loan losses
|
|
|
50,000
|
|
|
|
4,000
|
|
Net
interest income after provision for loan losses
|
|
|
61,677
|
|
|
|
76,786
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Customer
service fees
|
|
|
14,839
|
|
|
|
15,134
|
|
Other
loan fees
|
|
|
939
|
|
|
|
1,039
|
|
Gain
on sales of securities
|
|
|
2,112
|
|
|
|
-
|
|
Other-than-temporary
impairment write-down of securities
|
|
|
(5,300
|
)
|
|
|
-
|
|
Mortgage
banking income, net
|
|
|
469
|
|
|
|
450
|
|
Income
from bank owned life insurance
|
|
|
1,979
|
|
|
|
4,389
|
|
Other
|
|
|
904
|
|
|
|
1,425
|
|
Total
non-interest income
|
|
|
15,942
|
|
|
|
22,437
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
General
and administrative:
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
34,000
|
|
|
|
31,991
|
|
Occupancy,
equipment and systems
|
|
|
16,331
|
|
|
|
16,904
|
|
Federal
deposit insurance premiums
|
|
|
3,905
|
|
|
|
571
|
|
Advertising
|
|
|
1,559
|
|
|
|
1,073
|
|
Other
|
|
|
8,166
|
|
|
|
7,690
|
|
Total
non-interest expense
|
|
|
63,961
|
|
|
|
58,229
|
|
Income
before income tax expense
|
|
|
13,658
|
|
|
|
40,994
|
|
Income
tax expense
|
|
|
4,862
|
|
|
|
12,091
|
|
Net
income
|
|
$
|
8,796
|
|
|
$
|
28,903
|
|
Basic
earnings per common share
|
|
$
|
0.10
|
|
|
$
|
0.32
|
|
Diluted
earnings per common share
|
|
$
|
0.10
|
|
|
$
|
0.32
|
|
Dividends
per common share
|
|
$
|
0.13
|
|
|
$
|
0.26
|
|
Basic
weighted average common shares
|
|
|
90,213,163
|
|
|
|
89,472,902
|
|
Diluted
weighted average common and
common
equivalent shares
|
|
|
90,443,387
|
|
|
|
90,969,684
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
For
the Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Common
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
Stock
|
|
|
|
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
Held
|
|
(In
Thousands, Except Share Data)
|
|
Total
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
Loss
|
|
by
ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$
|
1,181,769
|
|
$
|
1,665
|
|
$
|
856,021
|
|
$
|
1,864,257
|
|
$
|
(1,459,211
|
)
|
$
|
(61,865
|
)
|
$
|
(19,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
8,796
|
|
|
-
|
|
|
-
|
|
|
8,796
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain on securities
|
|
|
17,266
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,266
|
|
|
-
|
|
Reclassification
of prior service cost
|
|
|
24
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24
|
|
|
-
|
|
Reclassification
of net actuarial loss
|
|
|
1,340
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,340
|
|
|
-
|
|
Reclassification
of loss on cash flow hedge
|
|
|
47
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
47
|
|
|
-
|
|
Comprehensive
income
|
|
|
27,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on common stock ($0.13 per share)
|
|
|
(11,859
|
)
|
|
-
|
|
|
82
|
|
|
(11,941
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options and related tax
benefit
(18,000 shares issued)
|
|
|
270
|
|
|
-
|
|
|
18
|
|
|
(119
|
)
|
|
371
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock grants (1,170,232 shares)
|
|
|
-
|
|
|
-
|
|
|
(9,585
|
)
|
|
(14,598
|
)
|
|
24,183
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefit shortfall on vested restricted stock
|
|
|
(997
|
)
|
|
-
|
|
|
(997
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
of restricted stock (10,910 shares)
|
|
|
10
|
|
|
-
|
|
|
201
|
|
|
33
|
|
|
(224
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation and allocation
of
ESOP stock
|
|
|
4,145
|
|
|
-
|
|
|
3,086
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
$
|
1,200,811
|
|
$
|
1,665
|
|
$
|
848,826
|
|
$
|
1,846,428
|
|
$
|
(1,434,881
|
)
|
$
|
(43,188
|
)
|
$
|
(18,039
|
)
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
|
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,796
|
|
|
$
|
28,903
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
premium amortization on mortgage loans and mortgage-backed
securities
|
|
|
4,352
|
|
|
|
9,076
|
|
Net
amortization of deferred costs on consumer and other loans and
borrowings
|
|
|
651
|
|
|
|
748
|
|
Net
provision for loan and real estate losses
|
|
|
51,000
|
|
|
|
4,520
|
|
Depreciation
and amortization
|
|
|
2,823
|
|
|
|
3,390
|
|
Net
gain on sales of loans and securities
|
|
|
(2,757
|
)
|
|
|
(327
|
)
|
Other-than-temporary
impairment write-down of securities
|
|
|
5,300
|
|
|
|
-
|
|
Originations
of loans held-for-sale
|
|
|
(80,843
|
)
|
|
|
(37,039
|
)
|
Proceeds
from sales and principal repayments of loans held-for-sale
|
|
|
44,411
|
|
|
|
30,931
|
|
Stock-based
compensation and allocation of ESOP stock
|
|
|
4,155
|
|
|
|
4,205
|
|
Decrease
(increase) in accrued interest receivable
|
|
|
1,583
|
|
|
|
(42
|
)
|
Mortgage
servicing rights amortization and valuation allowance
adjustments
|
|
|
1,086
|
|
|
|
833
|
|
Bank
owned life insurance income and insurance proceeds received,
net
|
|
|
2,255
|
|
|
|
(4,389
|
)
|
Increase
in other assets
|
|
|
(16,421
|
)
|
|
|
(13,906
|
)
|
Increase
in accrued expenses and other liabilities
|
|
|
59,476
|
|
|
|
56,678
|
|
Net
cash provided by operating activities
|
|
|
85,867
|
|
|
|
83,581
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Originations
of loans receivable
|
|
|
(377,824
|
)
|
|
|
(687,840
|
)
|
Loan
purchases through third parties
|
|
|
(49,439
|
)
|
|
|
(58,836
|
)
|
Principal
payments on loans receivable
|
|
|
666,817
|
|
|
|
1,178,944
|
|
Proceeds
from sales of delinquent and non-performing loans
|
|
|
11,993
|
|
|
|
1,752
|
|
Purchases
of securities available-for-sale
|
|
|
-
|
|
|
|
(56,979
|
)
|
Principal
payments on securities held-to-maturity
|
|
|
210,680
|
|
|
|
146,975
|
|
Principal
payments on securities available-for-sale
|
|
|
77,591
|
|
|
|
48,945
|
|
Proceeds
from sales of securities available-for-sale
|
|
|
91,391
|
|
|
|
-
|
|
Net
redemptions of Federal Home Loan Bank of New York stock
|
|
|
28,353
|
|
|
|
10,271
|
|
Proceeds
from sales of real estate owned, net
|
|
|
7,713
|
|
|
|
781
|
|
Purchases
of premises and equipment, net of proceeds from sales
|
|
|
(2,205
|
)
|
|
|
(5,144
|
)
|
Net
cash provided by investing activities
|
|
|
665,070
|
|
|
|
578,869
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
|
149,254
|
|
|
|
(45,896
|
)
|
Net
decrease in borrowings with original terms of three months or
less
|
|
|
(813,000
|
)
|
|
|
(583,000
|
)
|
Proceeds
from borrowings with original terms greater than three
months
|
|
|
185,000
|
|
|
|
350,000
|
|
Repayments
of borrowings with original terms greater than three
months
|
|
|
(200,000
|
)
|
|
|
(100,000
|
)
|
Net
increase in mortgage escrow funds
|
|
|
24,849
|
|
|
|
38,011
|
|
Common
stock repurchased
|
|
|
-
|
|
|
|
(7,409
|
)
|
Cash
dividends paid to stockholders
|
|
|
(11,941
|
)
|
|
|
(23,475
|
)
|
Cash
received for options exercised
|
|
|
252
|
|
|
|
1,095
|
|
Tax
benefit (shortfall) excess from share-based payment arrangements,
net
|
|
|
(897
|
)
|
|
|
274
|
|
Net
cash used in financing activities
|
|
|
(666,483
|
)
|
|
|
(370,400
|
)
|
Net
increase in cash and cash equivalents
|
|
|
84,454
|
|
|
|
292,050
|
|
Cash
and cash equivalents at beginning of period
|
|
|
100,293
|
|
|
|
118,190
|
|
Cash
and cash equivalents at end of period
|
|
$
|
184,747
|
|
|
$
|
410,240
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
148,935
|
|
|
$
|
186,157
|
|
Income
taxes
|
|
$
|
8,136
|
|
|
$
|
1,211
|
|
Additions
to real estate owned
|
|
$
|
13,405
|
|
|
$
|
6,612
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The
accompanying consolidated financial statements include the accounts of Astoria
Financial Corporation and its wholly-owned subsidiaries: Astoria Federal Savings
and Loan Association and its subsidiaries, referred to as Astoria Federal, and
AF Insurance Agency, Inc. As used in this quarterly report, “we,”
“us” and “our” refer to Astoria Financial Corporation and its consolidated
subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
In
addition to Astoria Federal and AF Insurance Agency, Inc., we have another
subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria
Financial Corporation for financial reporting purposes in accordance with
Financial Accounting Standards Board, or FASB, revised Interpretation No. 46,
“Consolidation of Variable Interest Entities, an interpretation of ARB No.
51.” Astoria Capital Trust I was formed in 1999 for the purpose of
issuing $125.0 million aggregate liquidation amount of 9.75% Capital Securities
due November 1, 2029, or Capital Securities, and $3.9 million of common
securities which are 100% owned by Astoria Financial Corporation, and using the
proceeds to acquire Junior Subordinated Debentures issued by Astoria Financial
Corporation. The Junior Subordinated Debentures total $128.9 million,
have an interest rate of 9.75%, mature on November 1, 2029 and are the sole
assets of Astoria Capital Trust I. The Junior Subordinated Debentures
are prepayable, in whole or in part, at our option on or after November 1, 2009
at declining premiums to November 1, 2019, after which the Junior Subordinated
Debentures are prepayable at par value. The Capital Securities have
the same prepayment provisions as the Junior Subordinated
Debentures. Astoria Financial Corporation has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
Astoria Capital Trust I under the trust agreement relating to the Capital
Securities. See Note 9 of Notes to Consolidated Financial Statements
included in Item 8, “Financial Statements and Supplementary Data” of our 2008
Annual Report on Form 10-K for restrictions on our subsidiaries’ ability to pay
dividends to us.
In our
opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of March 31, 2009 and December
31, 2008, our results of operations for the three months ended March 31, 2009
and 2008, changes in our stockholders’ equity for the three months ended March
31, 2009 and our cash flows for the three months ended March 31, 2009 and
2008. In preparing the consolidated financial statements, we are
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities for the consolidated statements of financial condition as
of March 31, 2009 and December 31, 2008, and amounts of revenues and expenses in
the consolidated statements of income for the three months ended March 31, 2009
and 2008. The results of operations for the three months ended March
31, 2009 are not necessarily indicative of the results of operations to be
expected for the remainder of the year. Certain information and note
disclosures normally included in financial statements prepared in accordance
with U.S. generally accepted accounting principles, or GAAP, have been condensed
or omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, or SEC. Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.
These
consolidated financial statements should be read in conjunction with our
December 31, 2008 audited consolidated financial statements and related notes
included in our 2008 Annual Report on Form 10-K.
The
following table sets forth the amortized cost and estimated fair value of
securities available-for-sale and held-to-maturity at the dates
indicated.
|
|
At March 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In Thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
(2) issuance
|
|
$
|
1,160,236
|
|
|
$
|
1,174,146
|
|
|
$
|
1,324,004
|
|
|
$
|
1,319,176
|
|
Non-GSE
issuance
|
|
|
32,372
|
|
|
|
30,358
|
|
|
|
33,795
|
|
|
|
29,440
|
|
GSE pass-through
certificates
|
|
|
39,075
|
|
|
|
39,809
|
|
|
|
40,383
|
|
|
|
40,666
|
|
Total
mortgage-backed securities
|
|
|
1,231,683
|
|
|
|
1,244,313
|
|
|
|
1,398,182
|
|
|
|
1,389,282
|
|
Freddie
Mac preferred stock
|
|
|
-
|
|
|
|
1,586
|
|
|
|
5,300
|
|
|
|
1,132
|
|
Other securities
|
|
|
40
|
|
|
|
26
|
|
|
|
40
|
|
|
|
26
|
|
Total securities
available-for-sale
|
|
$
|
1,231,723
|
|
|
$
|
1,245,925
|
|
|
$
|
1,403,522
|
|
|
$
|
1,390,440
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
2,266,873
|
|
|
$
|
2,308,601
|
|
|
$
|
2,451,155
|
|
|
$
|
2,465,074
|
|
Non-GSE
issuance
|
|
|
163,447
|
|
|
|
150,994
|
|
|
|
188,473
|
|
|
|
171,586
|
|
GSE pass-through
certificates
|
|
|
1,403
|
|
|
|
1,467
|
|
|
|
1,558
|
|
|
|
1,619
|
|
Total
mortgage-backed securities
|
|
|
2,431,723
|
|
|
|
2,461,062
|
|
|
|
2,641,186
|
|
|
|
2,638,279
|
|
Obligations
of states and political
subdivisions
|
|
|
5,002
|
|
|
|
5,002
|
|
|
|
5,676
|
|
|
|
5,676
|
|
Total securities
held-to-maturity
|
|
$
|
2,436,725
|
|
|
$
|
2,466,064
|
|
|
$
|
2,646,862
|
|
|
$
|
2,643,955
|
|
(1)
|
Real
estate mortgage investment conduits and collateralized mortgage
obligations
|
(2)
|
Government-sponsored
enterprise
|
The
following tables set forth the estimated fair values of securities with gross
unrealized losses at March 31, 2009 and December 31, 2008, segregated between
securities that have been in a continuous unrealized loss position for less than
twelve months at the respective dates and those that have been in a continuous
unrealized loss position for twelve months or longer.
|
|
At March 31, 2009
|
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
(In Thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
1,008
|
|
|
$
|
(2
|
)
|
|
$
|
262,195
|
|
|
$
|
(775
|
)
|
|
$
|
263,203
|
|
|
$
|
(777
|
)
|
Non-GSE
issuance
|
|
|
843
|
|
|
|
(6
|
)
|
|
|
29,515
|
|
|
|
(2,008
|
)
|
|
|
30,358
|
|
|
|
(2,014
|
)
|
GSE
pass-through certificates
|
|
|
4,489
|
|
|
|
(41
|
)
|
|
|
1,436
|
|
|
|
(17
|
)
|
|
|
5,925
|
|
|
|
(58
|
)
|
Other securities
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(14
|
)
|
Total
temporarily impaired securities
available-for-sale
|
|
$
|
6,341
|
|
|
$
|
(62
|
)
|
|
$
|
293,147
|
|
|
$
|
(2,801
|
)
|
|
$
|
299,488
|
|
|
$
|
(2,863
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
5,026
|
|
|
$
|
(10
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,026
|
|
|
$
|
(10
|
)
|
Non-GSE issuance
|
|
|
-
|
|
|
|
-
|
|
|
|
150,971
|
|
|
|
(12,454
|
)
|
|
|
150,971
|
|
|
|
(12,454
|
)
|
Total
temporarily impaired securities
held-to-maturity
|
|
$
|
5,026
|
|
|
$
|
(10
|
)
|
|
$
|
150,971
|
|
|
$
|
(12,454
|
)
|
|
$
|
155,997
|
|
|
$
|
(12,464
|
)
|
|
|
At December 31, 2008
|
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
(In Thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
167,797
|
|
|
$
|
(499
|
)
|
|
$
|
537,772
|
|
|
$
|
(12,971
|
)
|
|
$
|
705,569
|
|
|
$
|
(13,470
|
)
|
Non-GSE
issuance
|
|
|
962
|
|
|
|
(50
|
)
|
|
|
28,205
|
|
|
|
(4,305
|
)
|
|
|
29,167
|
|
|
|
(4,355
|
)
|
GSE
pass-through certificates
|
|
|
18,013
|
|
|
|
(169
|
)
|
|
|
1,389
|
|
|
|
(35
|
)
|
|
|
19,402
|
|
|
|
(204
|
)
|
Freddie
Mac preferred stock
|
|
|
1,132
|
|
|
|
(4,168
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,132
|
|
|
|
(4,168
|
)
|
Other securities
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(14
|
)
|
Total
temporarily impaired securities
available-for-sale
|
|
$
|
187,905
|
|
|
$
|
(4,899
|
)
|
|
$
|
567,367
|
|
|
$
|
(17,312
|
)
|
|
$
|
755,272
|
|
|
$
|
(22,211
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
357,335
|
|
|
$
|
(1,202
|
)
|
|
$
|
95,249
|
|
|
$
|
(998
|
)
|
|
$
|
452,584
|
|
|
$
|
(2,200
|
)
|
Non-GSE issuance
|
|
|
75,830
|
|
|
|
(1,991
|
)
|
|
|
95,733
|
|
|
|
(14,896
|
)
|
|
|
171,563
|
|
|
|
(16,887
|
)
|
Total
temporarily impaired securities
held-to-maturity
|
|
$
|
433,165
|
|
|
$
|
(3,193
|
)
|
|
$
|
190,982
|
|
|
$
|
(15,894
|
)
|
|
$
|
624,147
|
|
|
$
|
(19,087
|
)
|
The
number of securities which had an unrealized loss totaled 81 at March 31, 2009
and 146 at December 31, 2008. At March 31, 2009 and December 31,
2008, substantially all of the securities in an unrealized loss position had a
fixed interest rate and the cause of the temporary impairment is directly
related to the change in interest rates. In general, as interest
rates rise, the fair value of fixed rate securities will decrease; as interest
rates fall, the fair value of fixed rate securities will increase. We
generally view changes in fair value caused by changes in interest rates as
temporary, which is consistent with our experience. Therefore, as of
March 31, 2009 and December 31, 2008, the impairments are deemed temporary based
on the direct relationship of the decline in fair value to movements in interest
rates, the estimated remaining life and high credit quality of the investments
and our ability and intent to hold these investments until there is a full
recovery of the unrealized loss, which may be until maturity.
During
the three months ended March 31, 2009, we recorded a $5.3 million
other-than-temporary impairment, or OTTI, charge to write-off the remaining cost
basis of our investment in two issues of Freddie Mac perpetual preferred
securities. OTTI charges are included as a component of non-interest
income and are discussed in greater detail below.
There
were no OTTI charges during the three months ended March 31,
2008. During the 2008 third quarter, we recorded a $77.7 million OTTI
charge to reduce the cost basis of our Freddie Mac preferred securities to their
market values totaling $5.3 million as of September 30, 2008. The
decision to recognize the OTTI charge in the 2008 third quarter was based on the
severity of the decline in the market values of these securities during the
quarter and the unlikelihood of any near-term market value
recovery. The significant decline in the market value occurred
primarily as a result of the reported financial difficulties of Freddie Mac and
the announcement by the U.S. Department of Treasury and the Federal Housing
Finance Agency, or FHFA, that, among other things, Freddie Mac was being placed
under conservatorship; that the FHFA was assuming the powers of Freddie Mac’s
Board and management; and that dividends on Freddie Mac preferred stock were
suspended indefinitely. At December 31, 2008, our Freddie Mac stock
had an unrealized loss of $4.2 million. Although the market values of
these securities declined from September 30, 2008 to December 31, 2008, they
also reflected a significant amount of price volatility and had traded near or
above our cost basis during the 2008 fourth quarter. Additionally,
shortly after December 31, 2008, the securities again traded at market prices
close to our cost basis established at September 30, 2008. In
reviewing the changes in the market values during and subsequent to the 2008
fourth quarter, we believed that the changes were not due to company specific
news, either positive or negative, but appeared to be more reflective of the
volatility in the equity and bond markets. We believed that the
volatility measures, the trades
near or
above our cost basis during the 2008 fourth quarter and the significant increase
in values shortly after December 31, 2008 provided sufficient evidence to
support the likelihood of a possible near-term recovery in market
value. Based on the likelihood of a possible near-term market value
recovery, coupled with the short duration of the unrealized loss and no
significant change in the status of Freddie Mac, economic or otherwise, we
concluded this impairment was not other-than-temporary at December 31,
2008.
During
the 2009 first quarter, the market values of these securities trended downward
from the values observed in the beginning of January. Our analysis of
the market value trends indicated that there was no longer a likelihood of a
near-term market value recovery. Based on the increased duration of
the unrealized loss and the unlikelihood of a near-term market value recovery,
we concluded, as of March 31, 2009, our Freddie Mac preferred securities were
other-than-temporarily impaired and of such little value that a write-off of our
remaining cost basis was warranted. At March 31, 2009, the
securities’ market values totaled $1.6 million which is recorded as an
unrealized gain on our available-for-sale securities.
For
additional information regarding securities impairment, see “Critical Accounting
Policies” in Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” or “MD&A.”
During
the three months ended March 31, 2009, proceeds from sales of securities from
the available-for-sale portfolio totaled $91.4 million resulting in gross
realized gains of $2.1 million. There were no sales of securities
from the available-for-sale portfolio during the three months ended March 31,
2008.
The
following table sets forth the composition of our loans receivable portfolio in
dollar amounts and in percentages of the portfolio at the dates
indicated.
|
|
At March 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Mortgage
loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
12,157,308
|
|
|
|
74.55
|
%
|
|
$
|
12,349,617
|
|
|
|
74.42
|
%
|
Multi-family
|
|
|
2,837,382
|
|
|
|
17.40
|
|
|
|
2,911,733
|
|
|
|
17.55
|
|
Commercial
real estate
|
|
|
920,711
|
|
|
|
5.65
|
|
|
|
941,057
|
|
|
|
5.67
|
|
Construction
|
|
|
57,550
|
|
|
|
0.35
|
|
|
|
56,829
|
|
|
|
0.34
|
|
Total mortgage loans
|
|
|
15,972,951
|
|
|
|
97.95
|
|
|
|
16,259,236
|
|
|
|
97.98
|
|
Consumer
and other loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity
|
|
|
307,327
|
|
|
|
1.89
|
|
|
|
307,831
|
|
|
|
1.85
|
|
Commercial
|
|
|
13,015
|
|
|
|
0.08
|
|
|
|
13,331
|
|
|
|
0.08
|
|
Other
|
|
|
13,527
|
|
|
|
0.08
|
|
|
|
14,216
|
|
|
|
0.09
|
|
Total consumer and other
loans
|
|
|
333,869
|
|
|
|
2.05
|
|
|
|
335,378
|
|
|
|
2.02
|
|
Total
loans (gross)
|
|
|
16,306,820
|
|
|
|
100.00
|
%
|
|
|
16,594,614
|
|
|
|
100.00
|
%
|
Net
unamortized premiums and
deferred loan costs
|
|
|
115,039
|
|
|
|
|
|
|
|
117,830
|
|
|
|
|
|
Total
loans
|
|
|
16,421,859
|
|
|
|
|
|
|
|
16,712,444
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(149,187
|
)
|
|
|
|
|
|
|
(119,029
|
)
|
|
|
|
|
Total loans, net
|
|
$
|
16,272,672
|
|
|
|
|
|
|
$
|
16,593,415
|
|
|
|
|
|
Activity
in the allowance for loan losses is summarized as follows:
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
(In Thousands)
|
|
March 31, 2009
|
|
Balance
at December 31, 2008
|
|
$
|
119,029
|
|
Provision
charged to operations
|
|
|
50,000
|
|
Charge-offs
|
|
|
(20,787
|
)
|
Recoveries
|
|
|
945
|
|
Balance
at March 31, 2009
|
|
$
|
149,187
|
|
For
additional information regarding the composition of our loan portfolio,
non-performing loans and our allowance for loan losses, see “Asset Quality” in
Item 2, “MD&A.”
4.
|
Earnings Per Share, or
EPS
|
Effective
January 1, 2009, we adopted FASB Staff Position, or FSP, No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities,” which concluded that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
are participating securities and shall be included in the computation of EPS
pursuant to the two-class method described in Statement of Financial Accounting
Standard, or SFAS, No. 128, “Earnings per Share.” Our restricted
stock awards are considered participating securities pursuant to the
FSP. We calculated basic and diluted EPS under both the treasury
stock method and the two-class method. For the three months ended
March 31, 2009 and 2008, there was no difference in the per share amounts
calculated under the two methods.
The
following table is a reconciliation of basic and diluted EPS.
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
(In Thousands, Except Per Share Data)
|
|
EPS
|
|
|
EPS (1)
|
|
|
EPS
|
|
|
EPS (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,796
|
|
|
$
|
8,796
|
|
|
$
|
28,903
|
|
|
$
|
28,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
weighted average basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
90,213
|
|
|
|
90,213
|
|
|
|
89,473
|
|
|
|
89,473
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,274
|
|
Restricted
stock
|
|
|
-
|
|
|
|
230
|
|
|
|
-
|
|
|
|
223
|
|
Total
weighted average basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
common shares outstanding
|
|
|
90,213
|
|
|
|
90,443
|
|
|
|
89,473
|
|
|
|
90,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.32
|
|
|
$
|
0.32
|
|
(1)
|
Options
to purchase 8,680,865 shares of common stock and 548,958 shares of
unvested restricted stock were outstanding during the three months ended
March 31, 2009, but were not included in the computation of diluted EPS
because their inclusion would be
anti-dilutive.
|
(2)
|
Options
to purchase 3,198,031 shares of common stock were outstanding during the
three months ended March 31, 2008, but were not included in the
computation of diluted EPS because their inclusion would be
anti-dilutive.
|
On
February 2, 2009, 1,126,280 shares of restricted stock were granted to select
officers under the 2005 Re-designated, Amended and Restated Stock Incentive Plan
for Officers and
Employees
of Astoria Financial Corporation, or the 2005 Employee Stock Plan, and 43,952
shares of restricted stock were granted to directors under the Astoria Financial
Corporation 2007 Non-Employee Directors Stock Plan, or the 2007 Director Stock
Plan. Of the restricted stock granted to select officers, 204,570
shares vest one-third per year and 921,710 shares vest one-fifth per year on
December 15, beginning December 15, 2009. In the event the grantee
terminates his/her employment due to death or disability, or in the event we
experience a change in control, as defined and specified in the 2005 Employee
Stock Plan, all restricted stock granted pursuant to such grants immediately
vests. Under the 2007 Director Stock Plan, restricted stock awards
vest 100% on the third anniversary of the grant date, although awards will
immediately vest upon death, disability, mandatory retirement, involuntary
termination or a change in control, as such terms are defined in the
plan.
Restricted
stock activity in our stock incentive plans for the three months ended March 31,
2009 is summarized as follows:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
Nonvested at January 1, 2009
|
|
|
846,422
|
|
|
$27.63
|
|
Granted
|
|
|
1,170,232
|
|
|
8.19
|
|
Vested
|
|
|
(207,852
|
)
|
|
28.61
|
|
Forfeited
|
|
|
(10,910
|
)
|
|
18.43
|
|
Nonvested
at March 31, 2009
|
|
|
1,797,892
|
|
|
14.92
|
|
Stock-based
compensation expense is recognized on a straight-line basis over the vesting
period and totaled $899,000, net of taxes of $484,000, for the three
months ended March 31, 2009, and $1.2 million, net of taxes of $624,000, for the
three months ended March 31, 2008. At March 31, 2009, pre-tax
compensation cost related to all nonvested awards of restricted stock not yet
recognized totaled $20.0 million and will be recognized over a weighted average
period of approximately 3.7 years.
6.
|
Pension Plans and Other
Postretirement Benefits
|
The
following table sets forth information regarding the components of net periodic
cost for our defined benefit pension plans and other postretirement benefit
plan.
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$
|
871
|
|
|
$
|
771
|
|
|
$
|
81
|
|
|
$
|
71
|
|
Interest
cost
|
|
|
2,812
|
|
|
|
2,775
|
|
|
|
267
|
|
|
|
257
|
|
Expected
return on plan assets
|
|
|
(2,129
|
)
|
|
|
(3,164
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
62
|
|
|
|
76
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
Recognized
net actuarial loss (gain)
|
|
|
2,062
|
|
|
|
249
|
|
|
|
-
|
|
|
|
(36
|
)
|
Net
periodic cost
|
|
$
|
3,678
|
|
|
$
|
707
|
|
|
$
|
323
|
|
|
$
|
267
|
|
7.
|
Premises and Equipment,
net
|
Included
in premises and equipment, net, is an office building with a net carrying value
of $18.5 million which is classified as held-for-sale as of March 31,
2009. The office building, which is currently unoccupied, is located
in Lake Success, New York, and formerly housed our lending operations, which
were relocated in March 2008 to a facility which we currently lease in Mineola,
New York. We performed an impairment analysis of the building and
determined that
the
estimated fair value of the building exceeds the net carrying value and, as
such, there is no impairment. Since the building is classified as
held-for-sale, no depreciation expense is recorded.
8.
|
Fair Value
Measurements
|
We use
fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Our securities
available-for-sale are recorded at fair value on a recurring
basis. Additionally, from time to time, we may be required to record
at fair value other assets or liabilities on a non-recurring basis, such as
mortgage servicing rights, or MSR, loans receivable and real estate owned, or
REO. These non-recurring fair value adjustments involve the
application of lower-of-cost-or-market accounting or write-downs of individual
assets. Additionally, in connection with our mortgage banking
activities we have commitments to fund loans held-for-sale and commitments to
sell loans, which are considered free-standing derivative instruments, the fair
values of which are not material to our financial condition or results of
operations.
In
accordance with SFAS No. 157, “Fair Value Measurements,” we group our assets and
liabilities at fair value in three levels, based on the markets in which the
assets are traded and the reliability of the assumptions used to determine fair
value. These levels are:
●
|
Level
1 – Valuation is based upon quoted prices for identical instruments traded
in active markets.
|
●
|
Level
2 – Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuation techniques for which
all significant assumptions are observable in the
market.
|
●
|
Level
3 – Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These
unobservable assumptions reflect our own estimates of assumptions that
market participants would use in pricing the asset or
liability. Valuation techniques include the use of option
pricing models, discounted cash flow models and similar
techniques. The results cannot be determined with precision and
may not be realized in an actual sale or immediate settlement of the asset
or liability.
|
We base
our fair values on the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS No. 157 requires us to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value.
The
following is a description of valuation methodologies used for assets measured
at fair value on a recurring basis.
Securities
available-for-sale
Our
available-for-sale portfolio is carried at estimated fair value on a recurring
basis, with any unrealized gains and losses, net of taxes, reported as
accumulated other comprehensive income/loss in stockholders'
equity. Substantially all of our securities available-for-sale
portfolio consists of mortgage-backed securities. The fair values for
these securities are obtained from an independent nationally recognized pricing
service. Our pricing service uses various modeling techniques to
determine pricing for our mortgage-backed securities, including option pricing
and discounted cash flow models. The inputs to these models include
benchmark yields, reported
trades,
broker/dealer quotes, issuer spreads, benchmark securities, available trade
information, bids, offers, reference data, monthly payment information and
collateral performance. At March 31, 2009, 98% of our
available-for-sale securities portfolio was comprised of GSE securities for
which an active market exists for similar securities, making observable inputs
readily available. Additionally, our pricing service has indicated
that if they do not have sufficient objectively verifiable information to
continue to support a security’s valuation, they will discontinue evaluating the
security until such information can be obtained.
We review
the documentation provided by our independent pricing service regarding their
analysis of SFAS No. 157, as well as their summary of inputs utilized by asset
class and evaluation methodology summaries. We analyze changes in the
pricing service fair values from month to month taking into consideration
changes in market conditions including changes in mortgage spreads, changes in
treasury yields and changes in generic pricing on 15 year and 30 year
securities. Each month we conduct a review of the estimated values of
our fixed rate REMICs and CMOs available-for-sale which represent substantially
all of these securities priced by our pricing service. We generate
prices based upon a “spread matrix” approach for estimating
values. Market spreads are obtained from independent third party
firms who trade these types of securities. Any notable differences
between the pricing service prices and “spread matrix” prices on individual
securities are analyzed further, including a review of prices provided by other
independent parties, a yield analysis and review of average life changes using
Bloomberg analytics and a review of historical pricing on the particular
security. Based upon our review of the information and prices
provided by our pricing service, the fair values of securities incorporate
observable market inputs commonly used by buyers and sellers of these types of
securities at the measurement date in orderly transactions between market
participants, and, as such, are classified as Level 2. The fair
values of the remaining securities in our available-for-sale portfolio are
obtained from quoted market prices for identical instruments in active markets
and, as such, are classified as Level 1.
The
following table provides the level of valuation assumptions used to determine
the carrying value of our assets measured at fair value on a recurring basis at
March 31, 2009.
|
|
Carrying Value at March 31, 2009
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Securities
available-for-sale
|
|
$
|
1,245,925
|
|
|
$
|
1,612
|
|
|
$
|
1,244,313
|
|
|
$
|
-
|
|
The
following is a description of valuation methodologies used for assets measured
at fair value on a non-recurring basis.
MSR,
net
MSR are
carried at the lower of cost or estimated fair value. The estimated
fair value of MSR is obtained through independent third party valuations through
an analysis of future cash flows, incorporating estimates of assumptions market
participants would use in determining fair value including market discount
rates, prepayment speeds, servicing income, servicing costs, default rates and
other market driven data, including the market’s perception of future interest
rate movements and, as such, are classified as Level 3. Management
reviews the assumptions used to estimate the fair value of MSR to ensure they
reflect current and anticipated market conditions.
Loans
receivable, net
Loans
which meet certain criteria are evaluated individually for
impairment. A loan is considered impaired when, based upon current
information and events, it is probable that we will be unable to collect all
amounts due, including principal and interest, according to the contractual
terms of the loan agreement. Our impaired loans are generally
collateral dependent and, as such,
are
carried at the estimated fair value of the collateral less estimated selling
costs. Fair value is estimated through current appraisals, broker
opinions or automated valuation models and adjusted as necessary, by management,
to reflect current market conditions and, as such, is classified as Level
3.
REO,
net
REO
represents real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure and is carried, net of allowances for losses, at the lower of cost
or fair value less estimated selling costs. The fair value of REO is
estimated through current appraisals, in conjunction with a drive-by inspection
and comparison of the property securing the loan with similar properties in the
area by either a licensed appraiser or real estate broker. As these
properties are actively marketed, estimated fair value is periodically adjusted
by management to reflect current market conditions and, as such, is classified
as Level 3.
The
following table provides the level of valuation assumptions used to determine
the carrying value of our assets measured at fair value on a non-recurring basis
at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Carrying Value at March 31, 2009
|
|
|
Months Ended
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
March 31, 2009
|
|
MSR,
net
|
|
$
|
7,656
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,656
|
|
|
$
|
-
|
|
Impaired
loans (1)
|
|
|
21,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,578
|
|
|
|
(5,294
|
)
|
REO,
net (2)
|
|
|
22,505
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,505
|
|
|
|
(6,456
|
)
|
Total
|
|
$
|
51,739
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
51,739
|
|
|
$
|
(11,750
|
)
|
(1)
|
Losses
for the three months ended March 31, 2009 were charged against the
allowance for loan losses.
|
(2)
|
Losses
for the three months ended March 31, 2009 were charged against the
allowance for loan losses in the case of a write-down upon the transfer of
a loan to REO. Losses subsequent to the transfer of a loan to
REO were charged to REO expense.
|
We have
been a party to an action against the United States involving an assisted
acquisition made in the early 1980’s and supervisory goodwill accounting
utilized in connection therewith. The trial in this action, entitled
Astoria
Federal
Savings and Loan Association vs. United States
, took place during 2007
before the U.S. Court of Federal Claims. The U.S. Court of Federal
Claims, by decision filed on January 8, 2008, awarded to us $16.0 million in
damages from the U.S. Government. No portion of the $16.0 million
award was recognized in our consolidated financial statements. The
U.S. Government has appealed such decision to the U.S. Court of Appeals for the
Federal Circuit, which appeal is pending. The ultimate outcome of
this action and the timing of such outcome is uncertain and there can be no
assurance that we will benefit financially from such
litigation. Legal expense related to this action has been recognized
as it has been incurred.
10.
|
Impact of Accounting Standards
and Interpretations
|
In April
2009, the FASB issued three Staff Positions: FSP No. FAS 107-1 and
APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments;” FSP
No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly;” and FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.” All of these FSPs
are effective for interim and annual reporting periods ending after June 15,
2009 and do not require disclosures for earlier periods presented for
comparative purposes at initial adoption. In periods after initial
adoption, comparative disclosures are required only for periods ending after
initial adoption. Early adoption is permitted for periods ending
after March
15,
2009. However, FSP No. FAS 157-4 and FSP No. FAS 115-2 and
FAS 124-2 must be early adopted together and an entity must elect to early adopt
all three FSPs in order to early adopt FSP No. FAS 107-1 and APB
28-1. We have not elected to early adopt any of these
FSPs.
FSP No.
FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments,” and Accounting Principles Board Opinion No. 28, “Interim
Financial Reporting,” to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. In addition, this FSP requires
disclosure of the methods and significant assumptions used to estimate the fair
value of financial instruments as well as any changes in the methods and
significant assumptions used during the period. Since the provisions
of FSP No. 107-1 and APB 28-1 are disclosure related, our adoption will not have
an impact on our financial condition or results of operations.
FSP No.
FAS 157-4 provides additional guidance for estimating fair value in accordance
with SFAS No. 157, “Fair Value Measurements,” when the volume and level of
activity for an asset or liability have significantly decreased and includes
guidance on identifying circumstances that indicate a transaction is not
orderly. This FSP emphasizes that even if there has been a
significant decrease in the volume and level of activity for an asset or
liability and regardless of the valuation techniques used, the objective of a
fair value measurement remains the same. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market
conditions. FSP No. FAS 157-4 amends SFAS No. 157 to require that a
reporting entity disclose in interim and annual periods the inputs and valuation
techniques used to measure fair value and include a discussion of changes in
valuation techniques and related inputs, if any, during the
period. This FSP also requires a reporting entity to define major
categories for equity and debt securities based on the nature and risks of the
securities, consistent with the major security types as described in SFAS No.
115, “Accounting for Certain Investments in Debt and Equity Securities,” as
amended. Revisions resulting from a change in valuation technique or
its application shall be accounted for as a change in accounting
estimate. In the period of adoption, a reporting entity shall
disclose changes, if any, in valuation techniques and related inputs resulting
from the application of this FSP and quantify the total effect of the change in
valuation techniques and related inputs, if practicable, by major
category. We do not expect our adoption of FSP No. FAS 157-4 to
result in a change in valuation techniques and related inputs, or their
application. Therefore, our adoption of FSP No. 157-4 is not expected
to have a material impact on our financial condition or results of
operations.
FSP No.
115-2 and FAS 124-2 amends existing OTTI guidance for debt securities to make
the guidance more operational and to improve the presentation and disclosure of
OTTI on debt and equity securities in the financial statements. This
FSP modifies the existing requirements for recognizing OTTI on debt securities
and changes the presentation and amount of the OTTI recognized in the statement
of earnings. This FSP also modifies the accounting for debt
securities after an OTTI. This FSP does not amend existing
recognition and measurement guidance related to OTTI of equity
securities. This FSP expands and increases the frequency of existing
disclosures about OTTI for debt and equity securities, including a more
detailed, risk-oriented breakdown of major security types and requires that
certain annual disclosures, including the aging of securities with unrealized
losses, be made for interim periods. This FSP also requires new
disclosures to help users of financial statements understand the significant
inputs used in determining a credit loss, as well as a rollforward of that
amount each period. FSP No. 115-2 and FAS 124-2 shall be applied to
existing and new investments held by an entity as of the beginning of the
interim period in which it is adopted. For debt securities held at
the beginning of the interim period of adoption for which an OTTI was previously
recognized, if an
entity
does not intend to sell and it is not more likely than not that the entity will
be required to sell the security before recovery of its amortized cost basis,
the entity shall recognize the cumulative effect of initially applying this FSP
as an adjustment to the opening balance of retained earnings with a
corresponding adjustment to accumulated other comprehensive
income. As of March 31, 2009, we have not previously recognized OTTI
on any debt securities. Therefore, our initial adoption of this FSP
will not require such adjustments. We do not expect our adoption of
FSP No. 115-2 and FAS 124-2 to have a material impact on our financial condition
or results of operations.
In
December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets,” which amends SFAS No. 132 (revised
2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan. The FSP
clarifies that the objectives of the disclosures about postretirement benefit
plan assets are to provide users of financial statements with an understanding
of: (1) how investment allocation decisions are made, including the factors that
are pertinent to an understanding of investment policies and strategies; (2) the
major categories of plan assets; (3) the inputs and valuation techniques used to
measure the fair value of plan assets; (4) the effect of fair value measurements
using significant unobservable inputs (Level 3) on changes in plan assets for
the period; and (5) significant concentrations of risk within plan
assets. In addition, the FSP expands the disclosures related to these
overall objectives. The disclosures about plan assets required by
this FSP are effective for fiscal years ending after December 15,
2009. Upon initial application, the disclosures are not required for
earlier periods that are presented for comparative purposes, although earlier
application is permitted.
ITEM
2.
|
Management's Discussion and Analysis of Financial Condition and
Results of
Operations
|
This
Quarterly Report on Form 10-Q contains a number of forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. These statements may be identified by
the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,”
“will,” “would” and similar terms and phrases, including references to
assumptions.
Forward-looking
statements are based on various assumptions and analyses made by us in light of
our management’s experience and perception of historical trends, current
conditions and expected future developments, as well as other factors we believe
are appropriate under the circumstances. These statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond our control) that could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. These factors include, without
limitation, the following:
|
·
|
the
timing and occurrence or non-occurrence of events may be subject to
circumstances beyond our control;
|
|
·
|
there
may be increases in competitive pressure among financial institutions or
from non-financial institutions;
|
|
·
|
changes
in the interest rate environment may reduce interest margins or affect the
value of our investments;
|
|
·
|
changes
in deposit flows, loan demand or real estate values may adversely affect
our business;
|
|
·
|
changes
in accounting principles, policies or guidelines may cause our financial
condition to be perceived
differently;
|
|
·
|
general
economic conditions, either nationally or locally in some or all areas in
which we do business, or conditions in the real estate or securities
markets or the banking industry may be less favorable than we currently
anticipate;
|
|
·
|
legislative
or regulatory changes may adversely affect our
business;
|
|
·
|
technological
changes may be more difficult or expensive than we
anticipate;
|
|
·
|
success
or consummation of new business initiatives may be more difficult or
expensive than we anticipate; or
|
|
·
|
litigation
or other matters before regulatory agencies, whether currently existing or
commencing in the future, may be determined adverse to us or may delay the
occurrence or non-occurrence of events longer than we
anticipate.
|
We have
no obligation to update any forward-looking statements to reflect events or
circumstances after the date of this document.
Executive
Summary
The
following overview should be read in conjunction with our MD&A in its
entirety.
Astoria
Financial Corporation is a Delaware corporation organized as the unitary savings
and loan association holding company of Astoria Federal. Our primary
business is the operation of Astoria Federal. Astoria Federal's
principal business is attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations,
principal repayments on loans and securities and borrowings, primarily in
one-to-four family mortgage loans, multi-family mortgage loans, commercial real
estate loans and mortgage-backed securities. Our results of
operations are dependent primarily on our net interest income, which is the
difference between the interest earned on our assets, primarily our loan and
securities portfolios, and the interest paid on our deposits and
borrowings. Our earnings are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates and U.S. Treasury yield curves, government policies and actions of
regulatory authorities.
During
the first quarter of 2009, the national economy remained in a recession, with
particular emphasis on the continuing deterioration of the housing and real
estate markets and rising unemployment. During the three months ended
March 31, 2009, job losses accelerated further to 2.4 million jobs and the
unemployment rate increased to 8.5% for March 2009. During 2008, the
economy was marked by contractions in the availability of business and consumer
credit, falling home prices, increasing home foreclosures and significant job
losses. The disruption and volatility in the financial and capital
markets reached a crisis level as national and global credit markets ceased to
function effectively. Financial entities across the spectrum have
been affected by the lack of liquidity and credit deterioration, resulting in
the failure, near failure or sale at depressed valuations of some of the
nation’s largest financial institutions. Concern for the stability of
the banking and financial systems reached a magnitude which has resulted in
unprecedented government intervention during 2008 including, but not limited to,
the passage of the Emergency Economic Stabilization Act of 2008, or EESA, the
implementation of the Capital Purchase Program, or CPP, the Temporary Liquidity
Guarantee Program, or TLGP, the Troubled Asset Relief Program, or TARP, and
Commercial Paper Funding Facility, or CPFF, all of which are described in
greater detail in Item 1. “Business” and Item 1A. “Risk Factors” of our 2008
Annual Report on Form 10-K. During the 2009 first quarter, some of
these programs have been
expanded
to stimulate the economy and stabilize the housing market. To date,
the overall impact of these programs on the economy has been minimal and it will
take time for the benefits to be realized.
The
Federal Open Market Committee, or FOMC, has responded with monetary stimulus as
well. The FOMC reduced the federal funds rate by 400+ basis points in
2008, bringing the target rate to 0.00% to 0.25%, where it remained during the
2009 first quarter.
As the
premier Long Island community bank, our goals are to enhance shareholder value
while building a solid banking franchise. We focus on growing our
core businesses of mortgage portfolio lending and retail banking while
maintaining strong asset quality and controlling operating
expenses. We also provide returns to shareholders through dividends
and stock repurchases, although we have currently suspended our stock repurchase
program and reduced our dividend to preserve and grow capital during this period
of widespread economic distress.
Total
assets decreased during the three months ended March 31, 2009, primarily due to
decreases in our securities and loan portfolios. The decrease in our
securities portfolio was primarily the result of cash flow from repayments and
sales. The decrease in our loan portfolio was primarily due to
decreases in our one-to-four family, multi-family and commercial real estate
mortgage loan portfolios resulting from repayments outpacing origination and
purchase volume. Repayments continue to rise as more loans in our
portfolio qualify under the expanded conforming loan limits and refinance into
fixed rate mortgages. At the same time, more applications are failing
to close as borrowers do not meet our strict underwriting criteria, particularly
with respect to requirements for maximum loan-to-value ratios.
Total
deposits increased during the three months ended March 31, 2009. This
increase was due to increases in all deposit accounts, except Liquid
certificates of deposit, or Liquid CDs, which decreased slightly. The
increase in deposits reflects the diminished intense competition for core
community deposits which we experienced during 2008 as credit markets have eased
somewhat and larger institutions have utilized these alternative funding
sources. Deposit growth and cash flows from mortgage loan and
securities repayments exceeding mortgage loan originations and purchases enabled
us to repay a portion of our matured borrowings during the three months ended
March 31, 2009, which resulted in a decrease in our borrowings portfolio from
December 31, 2008.
Net
income for the three months ended March 31, 2009 decreased compared to the three
months ended March 31, 2008. This decrease was primarily due to
increases in the provision for loan losses and non-interest expense and a
decrease in non-interest income, partially offset by an increase in net interest
income.
Net
interest income, the net interest margin and the net interest rate spread for
the three months ended March 31, 2009 increased compared to the three months
ended March 31, 2008. These increases were due to a decrease in
interest expense, partially offset by a decrease in interest
income. The decrease in interest expense was primarily due to
decreases in the average costs of our certificates of deposit, borrowings and
Liquid CDs, coupled with decreases in the average balances of borrowings and
Liquid CDs, partially offset by an increase in the average balance of
certificates of deposit. The decrease in interest income was
primarily due to decreases in the average balances of mortgage-backed and other
securities and multi-family, commercial real estate and construction loans, and
decreases in the average yields on consumer and other loans, Federal Home Loan
Bank-New York, or FHLB-NY, stock and multi-family, commercial
real
estate
and construction loans, coupled with an increase in our non-performing loans,
partially offset by an increase in the average balance of one-to-four family
mortgage loans.
The
provision for loan losses recorded during the three months ended March 31, 2009
reflects the increase in and composition of our loan delinquencies,
non-performing loans, net loan charge-offs and overall loan portfolio, as well
as our evaluation of the continued deterioration of the housing and real estate
markets and overall economy
,
particularly the continued accelerated pace of job losses. As a
residential lender, we are vulnerable to the impact of a severe job loss
recession, due to its negative impact on the financial condition of residential
borrowers and their ability to remain current on their mortgage
loans. The decrease in non-interest income was primarily due to a
$5.3 million OTTI charge to write-off the remaining cost basis of our investment
in two issues of Freddie Mac perpetual preferred securities, as discussed in
Note 2 of “Notes to Consolidated Financial Statements” in Item 1, “Financial
Statements (Unaudited),” and a decrease in income from bank owned life
insurance, or BOLI. The increase in non-interest expense was
primarily due to increases in federal deposit insurance premiums and
compensation and benefits expense, primarily due to an increase in the net
periodic cost of pension and other postretirement benefits.
We expect
deposit growth in 2009 will continue, particularly as the intense competition
for core community deposits has diminished, and we expect increases in net
interest income and the net interest margin going forward as we begin to realize
the benefit from certificates of deposit, with interest rates that are
considerably above current market rates, which mature during the 2009 second and
third quarters. However, continued job losses and overall economic
weakness coupled with declining real estate values will put increased pressure
on the loan portfolio which, more than likely, will result in somewhat higher
delinquencies and non-performing loans; but credit costs in 2009 should remain
manageable.
Available
Information
Our
internet website address is www.astoriafederal.com. Financial
information, including our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments to those reports, can
be obtained free of charge from our Investor Relations website at
http://ir.astoriafederal.com. The above reports are available on our
website immediately after they are electronically filed with or furnished to the
SEC. Such reports are also available on the SEC’s website at
www.sec.gov/edgar/searchedgar/webusers.htm.
Critical
Accounting Policies
Note 1 of
Notes to Consolidated Financial Statements included in Item 8, “Financial
Statements and Supplementary Data,” of our 2008 Annual Report on Form 10-K, as
supplemented by this report, contains a summary of our significant accounting
policies. Various elements of our accounting policies, by their
nature, are inherently subject to estimation techniques, valuation assumptions
and other subjective assessments. Our policies with respect to the
methodologies used to determine the allowance for loan losses, the valuation of
MSR and judgments regarding goodwill and securities impairment are our most
critical accounting policies because they are important to the presentation of
our financial condition and results of operations, involve a higher degree of
complexity and require management to make difficult and subjective judgments
which often require assumptions or estimates about highly uncertain
matters. The use of different judgments, assumptions and estimates
could result in material differences in our results of operations or financial
condition. These critical accounting policies are reviewed quarterly
with the Audit Committee of our Board of Directors. The following
description of these policies
should be
read in conjunction with the corresponding section of our 2008 Annual Report on
Form 10-K.
Allowance for Loan
Losses
Our
allowance for loan losses is established and maintained through a provision for
loan losses based on our evaluation of the probable inherent losses in our loan
portfolio. We evaluate the adequacy of our allowance on a quarterly
basis. The allowance is comprised of both specific valuation
allowances and general valuation allowances.
Specific
valuation allowances are established in connection with individual loan reviews
and the asset classification process, including the procedures for impairment
recognition under SFAS No. 114, “Accounting by Creditors for Impairment of a
Loan, an Amendment of FASB Statements No. 5 and 15,” and SFAS No. 118,
“Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures, an amendment of FASB Statement No. 114.” Such
evaluation, which includes a review of loans on which full collectibility is not
reasonably assured, considers the current estimated fair value of the underlying
collateral, if any, current and anticipated economic and regulatory conditions,
current and historical loss experience of similar loans and other factors that
determine risk exposure to arrive at an adequate loan loss
allowance.
Loan
reviews are completed quarterly for all loans individually classified by our
Asset Classification Committee. Individual loan reviews are generally
completed annually for multi-family, commercial real estate and construction
mortgage loans in excess of $2.0 million, commercial business loans in excess of
$200,000, one-to-four family mortgage loans in excess of $1.0 million and
troubled debt restructurings. In addition, we generally review
annually borrowing relationships whose combined outstanding balance exceeds $2.0
million. Approximately fifty percent of the outstanding principal
balance of these loans to a single borrowing entity will be reviewed
annually.
The
primary considerations in establishing specific valuation allowances are the
current estimated value of a loan’s underlying collateral and the loan’s payment
history. We update our estimates of collateral value for
non-performing multi-family, commercial real estate and construction mortgage
loans in excess of $1.0 million and one-to-four family mortgage loans which are
180 days delinquent, annually, and certain other loans when the Asset
Classification Committee believes repayment of such loans may be dependent on
the value of the underlying collateral. For one-to-four family
mortgage loans, updated estimates of collateral value are obtained through
appraisals, broker opinions or automated valuation models. For
multi-family and commercial real estate properties, we estimate collateral value
through appraisals or based on an internal cash flow analysis when current
financial information is available, coupled with, in most cases, an inspection
of the property. Other current and anticipated economic conditions on
which our specific valuation allowances rely are the impact that national and/or
local economic and business conditions may have on borrowers, the impact that
local real estate markets may have on collateral values, the level and direction
of interest rates and their combined effect on real estate values and the
ability of borrowers to service debt. For multi-family and commercial
real estate loans, additional factors specific to a borrower or the underlying
collateral are considered. These factors include, but are not limited
to, the composition of tenancy, occupancy levels for the property, cash flow
estimates and, to a lesser degree, the existence of personal
guarantees. We also review all regulatory notices, bulletins and
memoranda with the purpose of identifying upcoming changes in regulatory
conditions which may impact our calculation of specific valuation
allowances. The Office of Thrift Supervision, or OTS, periodically
reviews our reserve methodology during regulatory examinations and
any
comments
regarding changes to reserves or loan classifications are considered by
management in determining valuation allowances.
Pursuant
to our policy, loan losses are charged-off in the period the loans, or portions
thereof, are deemed uncollectible, or, in the case of one-to-four family
mortgage loans, at 180 days past due for the portion of the recorded investment
in the loan in excess of the estimated fair value of the underlying collateral
less estimated selling costs. The determination of the loans on which
full collectibility is not reasonably assured, the estimates of the fair value
of the underlying collateral and the assessment of economic and regulatory
conditions are subject to assumptions and judgments by
management. Specific valuation allowances could differ materially as
a result of changes in these assumptions and judgments.
General
valuation allowances represent loss allowances that have been established to
recognize the inherent risks associated with our lending activities which,
unlike specific allowances, have not been allocated to particular
loans. The determination of the adequacy of the general valuation
allowances takes into consideration a variety of factors. We segment
our one-to-four family mortgage loan portfolio by interest-only and amortizing
loans, full documentation and reduced documentation loans and year of
origination and analyze our historical loss experience and delinquency levels
and trends of these segments. The resulting range of allowance
percentages is used as an integral part of our judgment in developing estimated
loss percentages to apply to the portfolio segments. We segment our
consumer and other loan portfolio by home equity lines of credit, business
loans, revolving credit lines and installment loans and perform similar
historical loss analyses. We monitor credit risk on interest-only
hybrid adjustable rate mortgage, or ARM, loans that were underwritten at the
initial note rate, which may have been a discounted rate, in the same manner as
we monitor credit risk on all interest-only hybrid ARM loans. We
monitor interest rate reset dates of our portfolio, in the aggregate, and the
current interest rate environment and consider the impact, if any, on the
borrowers’ ability to continue to make timely principal and interest payments in
determining our allowance for loan losses. We also consider the size,
composition, risk profile, delinquency levels and cure rates of our portfolio,
as well as our credit administration and asset management
procedures. We monitor property value trends in our market areas by
reference to various industry and market reports, economic releases and surveys,
and our general and specific knowledge of the real estate markets in which we
lend, in order to determine what impact, if any, such trends may have on the
level of our general valuation allowances. In determining our
allowance coverage percentages for non-performing loans, we consider our
historical loss experience with respect to the ultimate disposition of the
underlying collateral. In addition, we evaluate and consider the
impact that current and anticipated economic and market conditions may have on
the portfolio and known and inherent risks in the portfolio.
Consistent
with the Interagency Policy Statement on the Allowance for Loan and Lease Losses
issued by the Federal Financial Regulatory Agencies in December 2006, we use
ratio analyses as a supplemental tool for evaluating the overall reasonableness
of the allowance for loan losses. As such, we evaluate and consider
our asset quality ratios as well as the allowance ratios and coverage
percentages set forth in both peer group and regulatory agency
data. We also consider any comments from the OTS resulting from their
review of our general valuation allowance methodology during regulatory
examinations. We consider the observed trends in our asset quality
ratios in combination with our primary focus on our historical loss experience
and the impact of current economic conditions. After evaluating these
variables, we determine appropriate allowance coverage percentages for each of
our portfolio segments and the appropriate level of our allowance for loan
losses. We do not determine the appropriate level of our allowance
for loan losses based exclusively on a single factor or asset quality
ratio. Our
evaluation
of general valuation allowances is inherently subjective because, even though it
is based on objective data, it is management’s interpretation of that data that
determines the amount of the appropriate allowance. Therefore, we
periodically review the actual performance and charge-off history of our
portfolio and compare that to our previously determined allowance coverage
percentages and specific valuation allowances. In doing so, we
evaluate the impact the previously mentioned variables may have had on the
portfolio to determine which changes, if any, should be made to our assumptions
and analyses.
As a
result of our updated charge-off and loss analyses, we modified certain
allowance coverage percentages during the 2009 first quarter to be more
reflective of our current estimates of the amount of probable losses inherent in
our loan portfolio in determining our general valuation
allowances. Based on our evaluation of the continued deterioration of
the housing and real estate markets and overall economy, in particular, the
significant increase in unemployment during the 2009 first quarter and 2008
fourth quarter, and the increase in and composition of our delinquencies,
non-performing loans and net loan charge-offs, we determined that an allowance
for loan losses of $149.2 million was required at March 31, 2009, compared to
$119.0 million at December 31, 2008, resulting in a provision for loan losses of
$50.0 million for the three months ended March 31, 2009. The balance
of our allowance for loan losses represents management’s best estimate of the
probable inherent losses in our loan portfolio at the reporting
dates.
Actual
results could differ from our estimates as a result of changes in economic or
market conditions. Changes in estimates could result in a material
change in the allowance for loan losses. While we believe that the
allowance for loan losses has been established and maintained at levels that
reflect the risks inherent in our loan portfolio, future adjustments may be
necessary if portfolio performance or economic or market conditions differ
substantially from the conditions that existed at the time of the initial
determinations.
For
additional information regarding our allowance for loan losses, see “Provision
for Loan Losses” and “Asset Quality” in this document and Part II, Item 7,
“MD&A,” in our 2008 Annual Report on Form 10-K.
Valuation of
MSR
The
initial asset recognized for originated MSR is measured at fair
value. The fair value of MSR is estimated by reference to current
market values of similar loans sold servicing released. MSR are
amortized in proportion to and over the period of estimated net servicing
income. We apply the amortization method for measurement of our
MSR. MSR are assessed for impairment based on fair value at each
reporting date. Impairment exists if the carrying value of MSR
exceeds the estimated fair value. The estimated fair value of MSR is obtained
through independent third party valuations. MSR impairment, if any,
is recognized in a valuation allowance through charges to
earnings. Increases in the fair value of impaired MSR are recognized
only up to the amount of the previously recognized valuation
allowance.
At March
31, 2009, our MSR, net, had an estimated fair value of $7.7 million and were
valued based on expected future cash flows considering a weighted average
discount rate of 11.50%, a weighted average constant prepayment rate on
mortgages of 17.40% and a weighted average life of 4.1 years. At
December 31, 2008, our MSR, net, had an estimated fair value of $8.2 million and
were valued based on expected future cash flows considering a weighted average
discount rate of 12.99%, a weighted average constant prepayment rate on
mortgages of 17.26% and a weighted average life of 4.3 years.
The fair
value of MSR is highly sensitive to changes in assumptions. Changes
in prepayment speed assumptions generally have the most significant impact on
the fair value of our MSR. Generally, as interest rates decline,
mortgage loan prepayments accelerate due to increased refinance activity, which
results in a decrease in the fair value of MSR. As interest rates
rise, mortgage loan prepayments slow down, which results in an increase in the
fair value of MSR. Thus, any measurement of the fair value of our MSR
is limited by the conditions existing and the assumptions utilized as of a
particular point in time, and those assumptions may not be appropriate if they
are applied at a different point in time. Assuming an increase in
interest rates of 100 basis points at March 31, 2009, the estimated fair value
of our MSR would have been $2.8 million greater. Assuming a decrease
in interest rates of 100 basis points at March 31, 2009, the estimated fair
value of our MSR would have been $1.9 million lower.
Goodwill
Impairment
Goodwill
is presumed to have an indefinite useful life and is tested, at least annually,
for impairment at the reporting unit level. Impairment exists when the carrying
amount of goodwill exceeds its implied fair value. For purposes of
our goodwill impairment testing, we have identified a single reporting
unit. We consider the quoted market price of our common stock on our
impairment testing date as an initial indicator of estimating the fair value of
our reporting unit. In addition, we consider our average stock price,
both before and after our impairment test date, as well as market-based control
premiums in determining the estimated fair value of our reporting
unit. If the estimated fair value of our reporting unit exceeds its
carrying amount, further evaluation is not necessary. However, if the
fair value of our reporting unit is less than its carrying amount, further
evaluation is required to compare the implied fair value of the reporting unit’s
goodwill to its carrying amount to determine if a write-down of goodwill is
required.
At March
31, 2009, the carrying amount of our goodwill totaled $185.2
million. On September 30, 2008, we performed our annual goodwill
impairment test and determined the estimated fair value of our reporting unit to
be in excess of its carrying amount. Accordingly, as of our annual
impairment test date, there was no indication of goodwill
impairment. We would test our goodwill for impairment between annual
tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of our reporting unit below its carrying
amount. Accordingly, we also evaluated goodwill for impairment as of
March 31, 2009 and December 31, 2008 due to the decline in our market
capitalization. The results of these analyses also included market
events occurring subsequent to the evaluation dates. Based on our
evaluations at March 31, 2009 and December 31, 2008, there was no indication of
goodwill impairment. No assurance can be given that we will not
record an impairment loss on goodwill in a subsequent period. However, our
tangible capital ratio and Astoria Federal’s regulatory capital ratios would not
be affected by this potential non-cash expense since goodwill is not included in
these calculations. The identification of additional reporting units or the use
of other valuation techniques could result in materially different evaluations
of impairment.
Securities
Impairment
Our
available-for-sale securities portfolio is carried at estimated fair value with
any unrealized gains and losses, net of taxes, reported as accumulated other
comprehensive income/loss in stockholders’ equity. Debt securities
which we have the positive intent and ability to hold to maturity are classified
as held-to-maturity and are carried at amortized cost.
T
he fair values for
our securities are obtained from an independent nationally recognized pricing
service.
Our
investment portfolio is comprised primarily of fixed rate mortgage-backed
securities guaranteed by a GSE as issuer. GSE issuance
mortgage-backed securities comprised 95% of our securities portfolio at March
31, 2009. Non-GSE issuance mortgage-backed securities at March 31,
2009 comprised 5% of our securities portfolio and had an amortized cost of
$195.8 million, 17% of which are classified as available-for-sale and 83% of
which are classified as held-to-maturity. Substantially all of our
non-GSE issuance securities have a AAA credit rating and they have performed
similarly to our GSE issuance securities. The current mortgage market
conditions reflecting credit quality concerns have not significantly impacted
the performance of our non-GSE securities. Based on the high quality
of our investment portfolio, current market conditions have not significantly
impacted the pricing of our portfolio or our ability to obtain reliable
prices.
The fair
value of our investment portfolio is primarily impacted by changes
in interest
rates.
In general, as interest rates rise, the fair value of
fixed rate securities will decrease; as interest rates fall, the fair value of
fixed rate securities will increase. We conduct a periodic review and
evaluation of the securities portfolio to determine if a decline in the fair
value of any security below its cost basis is
other-than-temporary. Our evaluation of other-than-temporary
impairment considers the duration and severity of the impairment, our intent and
ability to hold the securities and our assessments of the reason for the decline
in value and the likelihood of a near-term recovery. We generally
view changes in fair value caused by changes in interest rates as temporary,
which is consistent with our experience. If such decline is deemed
other-than-temporary, the security is written down to a new cost basis and the
resulting loss is charged to earnings as a component of non-interest
income. At March 31, 2009, we had 81 securities with an estimated
fair value totaling $455.5 million which had an unrealized loss totaling $15.3
million, substantially all of which have been in a continuous unrealized loss
position for more than twelve months. At March 31, 2009, the
impairments are deemed temporary based on the direct relationship of the decline
in fair value to movements in interest rates, the estimated remaining life and
high credit quality of the investments and our ability and intent to hold these
investments until there is a full recovery of the unrealized loss, which may be
until maturity.
During
the three months ended March 31, 2009, we recorded a $5.3 million OTTI charge to
write-off the remaining cost basis of our investment in two issues of Freddie
Mac perpetual preferred securities. For additional information
regarding securities impairment and the OTTI charge, see Note 2 of “Notes to
Consolidated Financial Statements” in Item 1, “Financial Statements
(Unaudited).”
There were no OTTI
charges during the three months ended March 31, 2008.
Liquidity
and Capital Resources
Our
primary source of funds is cash provided by principal and interest payments on
loans and securities. The most significant liquidity challenge we
face is the variability in cash flows as a result of changes in mortgage
refinance activity. Principal payments on loans and securities
totaled $955.1 million for the three months ended March 31, 2009 and $1.37
billion for the three months ended March 31, 2008. The net decrease
in loan and securities repayments for the three months ended March 31, 2009,
compared to the three months ended March 31, 2008, was primarily the result of a
decrease in loan repayments, primarily due to significantly elevated levels of
residential mortgage loan prepayments from refinance activity during the 2008
first quarter resulting from a rapid decline in mortgage loan interest rates
during that time, partially offset by an increase in securities
repayments.
In
addition to cash provided by principal and interest payments on loans and
securities, our other sources of funds include cash provided by operating
activities, deposits and borrowings. Net cash provided by operating
activities totaled $85.9 million during the three months ended March 31, 2009
and $83.6 million during the three months ended March 31,
2008. Deposits increased $149.3 million during the three months ended
March 31, 2009 and decreased $45.9 million during the three months ended March
31, 2008. The net increase in deposits for the three months ended
March 31, 2009 was due to increases in all deposit accounts, except Liquid CDs
which decreased slightly, and reflects the diminished intense competition for
core community deposits which we experienced during 2008 as credit markets have
eased somewhat and larger institutions have utilized these alternative funding
sources. The net decrease in deposits for the three months ended
March 31, 2008 was primarily attributable to decreases in Liquid CDs, savings
accounts and money market accounts, partially offset by increases in
certificates of deposit and NOW and demand deposit accounts. During
2008, certain larger financial institutions continued to offer retail deposits
at above market rates. We maintained our deposit pricing discipline,
which resulted in net deposit outflows.
Net
borrowings decreased $827.9 million during the three months ended March 31, 2009
and $332.8 million during the three months ended March 31, 2008. The
decrease in net borrowings during the three months ended March 31, 2009 was
primarily the result of deposit growth and cash flows from mortgage loan and
securities repayments exceeding mortgage loan originations and purchases which
enabled us to repay a portion of our matured borrowings. The decrease
in net borrowings during the three months ended March 31, 2008 was the result of
cash flows from mortgage loan and securities repayments exceeding mortgage loan
originations and purchases.
Our
primary use of funds is for the origination and purchase of mortgage
loans. Gross mortgage loans originated and purchased for portfolio
during the three months ended March 31, 2009 totaled $391.9 million, of which
$342.9 million were originations and $49.0 million were
purchases. This compares to gross mortgage loans originated and
purchased for portfolio during the three months ended March 31, 2008 totaling
$704.9 million, of which $646.7 million were originations and $58.2 million were
purchases. The decrease in mortgage loan originations and purchases
was primarily due to a decrease in one-to-four family mortgage loan originations
and purchases. The 2009 first quarter one-to-four family mortgage
loan origination and purchase volume was negatively affected by significant
fallout from our mortgage loan application pipeline due to, among other things,
the fact that potential borrowers are not qualifying under our strict
underwriting guidelines, particularly with respect to requirements for maximum
loan-to-value ratios. In addition, we originated loans held-for-sale
totaling $80.8 million during the three months ended March 31, 2009 and $35.9
million during the three months ended March 31, 2008. The increase in
originations of loans held-for-sale reflects the impact of the expanded
conforming loan limits and rapid decline in interest rates for these fixed rate
products. Multi-family and commercial real estate loan originations
for the three months ended March 31, 2009 also decreased compared to the three
months ended March 31, 2008. We do not believe the current real
estate market and economic environment support aggressively pursuing
multi-family and commercial real estate loans given the additional risks
associated with this type of lending. As of March 31, 2009, we are
only offering to originate multi-family and commercial real estate loans to
select existing customers in New York and New Jersey.
We
maintain liquidity levels to meet our operational needs in the normal course of
our business. The levels of our liquid assets during any given period
are dependent on our operating, investing and financing
activities. Cash and due from banks and repurchase agreements, our
most liquid assets, increased $84.4 million to $184.7 million at March 31, 2009,
from $100.3 million at December 31, 2008. At March 31, 2009, we had
$700.0 million in borrowings with a weighted
average
rate of 4.87% maturing over the next twelve months. We have the
flexibility to either repay or rollover these borrowings as they
mature. The continued disruption in the credit markets has not
impacted our ability to engage in ordinary course borrowings. In
addition, we had $7.74 billion in certificates of deposit and Liquid CDs at
March 31, 2009 with a weighted average rate of 3.24% maturing over the next
twelve months. We expect to retain or replace a significant portion
of such deposits based on our competitive pricing and historical
experience.
The
following table details our borrowing, certificate of deposit and Liquid CD
maturities and their weighted average rates at March 31, 2009.
|
|
|
|
|
Certificates of Deposit
|
|
|
|
Borrowings
|
|
|
and Liquid CDs
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
(Dollars in Millions)
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Contractual
Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months or less
|
|
$
|
700
|
|
|
|
4.87
|
%
|
|
$
|
7,738
|
(1)
|
|
|
3.24
|
%
|
Thirteen
to thirty-six months
|
|
|
2,460
|
(2)
|
|
|
3.63
|
|
|
|
1,745
|
|
|
|
4.04
|
|
Thirty-seven
to sixty months
|
|
|
900
|
(3)
|
|
|
4.72
|
|
|
|
398
|
|
|
|
4.29
|
|
Over sixty months
|
|
|
2,079
|
(4)
|
|
|
4.15
|
|
|
|
20
|
|
|
|
4.31
|
|
Total
|
|
$
|
6,139
|
|
|
|
4.11
|
%
|
|
$
|
9,901
|
|
|
|
3.43
|
%
|
(1)
|
Includes
$977.4 million of Liquid CDs with a weighted average rate of 1.69% and
$6.76 billion of certificates of deposit with a weighted average rate of
3.46%.
|
(2)
|
Includes
$625.0 million of borrowings, with a weighted average rate of 4.31%, which
are callable by the counterparty within the next twelve months and at
various times thereafter.
|
(3)
|
Includes
$650.0 million of borrowings, with a weighted average rate of 4.33%, which
are callable by the counterparty within the next twelve months and at
various times thereafter.
|
(4)
|
Includes
$1.95 billion of borrowings, with a weighted average rate of 3.77%, which
are callable by the counterparty within the next twelve months and at
various times thereafter.
|
Additional
sources of liquidity at the holding company level have included issuances of
securities into the capital markets, including private issuances of trust
preferred securities and senior debt.
H
olding company debt obligations
are included in other borrowings. Our ability to continue to access
the capital markets for additional financing at favorable terms may be limited
by, among other things, market conditions, interest rates, our capital levels,
Astoria Federal’s ability to pay dividends to Astoria Financial Corporation, our
credit profile and ratings and our business model.
Astoria
Financial Corporation’s primary uses of funds include payment of dividends,
payment of principal and interest on its debt obligations and repurchases of
common stock, although as of March 31, 2009 we are not currently repurchasing
additional shares of our common stock. Our payment of dividends
totaled $11.9 million during the three months ended March 31,
2009. Our ability to pay dividends, service our debt obligations and
repurchase common stock is dependent primarily upon receipt of capital
distributions from Astoria Federal. Since Astoria Federal is a
federally chartered savings association, there are limits on its ability to make
distributions to Astoria Financial Corporation. During the three
months ended March 31, 2009, Astoria Federal paid dividends to Astoria Financial
Corporation totaling $25.7 million.
We have
elected to participate in the Federal Deposit Insurance Corporation’s, or FDIC,
TLGP which permits the FDIC to guarantee certain newly-issued senior unsecured
debt prior to October 31, 2009 and fully insure our non-interest bearing
transaction deposit accounts. The FDIC guaranty would be backed by
the full faith and credit of the United States of
America. The
availability
of the FDIC guaranty is expected to enhance our ability to generate additional
liquidity. However, we have not issued and we have no plans to issue,
senior unsecured debt. In addition, we have elected not to
participate in the CPP.
On March
2, 2009, we paid a quarterly cash dividend of $0.13 per share on shares of our
common stock outstanding as of the close of business on February 17, 2009
totaling $11.9 million. On April 22, 2009, we declared a quarterly
cash dividend of $0.13 per share on shares of our common stock payable on June
1, 2009 to stockholders of record as of the close of business on May 15,
2009.
Our
twelfth stock repurchase plan, approved by our Board of Directors on April 18,
2007, authorized the purchase of 10,000,000 shares, or approximately 10% of our
common stock outstanding, in open-market or privately negotiated
transactions. During the three months ended March 31, 2009, there
were no repurchases of our common stock. At March 31, 2009, a maximum
of 8,107,300 shares may yet be purchased under this plan.
See
“Financial Condition” for a further discussion of the changes in stockholders’
equity.
At March
31, 2009, Astoria Federal’s capital levels exceeded all of its regulatory
capital requirements with a tangible capital ratio of 6.55%, leverage capital
ratio of 6.55% and total risk-based capital ratio of 12.45%. The
minimum regulatory requirements are a tangible capital ratio of 1.50%, leverage
capital ratio of 4.00% and total risk-based capital ratio of
8.00%. As of March 31, 2009, Astoria Federal continues to be a well
capitalized institution.
Off-Balance
Sheet Arrangements and Contractual Obligations
We are a
party to financial instruments with off-balance sheet risk in the normal course
of our business in order to meet the financing needs of our customers and in
connection with our overall interest rate risk management
strategy. These instruments involve, to varying degrees, elements of
credit, interest rate and liquidity risk. In accordance with GAAP,
these instruments are either not recorded in the consolidated financial
statements or are recorded in amounts that differ from the notional
amounts. Such instruments primarily include lending commitments and
lease commitments.
Lending
commitments include commitments to originate and purchase loans and commitments
to fund unused lines of credit. Additionally, in connection with our
mortgage banking activities, we have commitments to fund loans held-for-sale and
commitments to sell loans which are considered derivative
instruments. Commitments to sell loans totaled $95.5 million at March
31, 2009. The fair values of our mortgage banking derivative
instruments are immaterial to our financial condition and results of
operations. We also have contractual obligations related to operating
lease commitments which have not changed significantly from December 31,
2008.
The
following table details our contractual obligations at March 31,
2009.
|
|
Payments due by period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Three to
|
|
|
More than
|
|
(In Thousands)
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
with original terms greater than three months
|
|
$
|
6,138,866
|
|
|
$
|
700,000
|
|
|
$
|
2,460,000
|
|
|
$
|
900,000
|
|
|
$
|
2,078,866
|
|
Commitments
to originate and purchase loans (1)
|
|
|
343,112
|
|
|
|
343,112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commitments to fund unused lines of credit
(2)
|
|
|
332,802
|
|
|
|
332,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,814,780
|
|
|
$
|
1,375,914
|
|
|
$
|
2,460,000
|
|
|
$
|
900,000
|
|
|
$
|
2,078,866
|
|
(1) Commitments
to originate and purchase loans include commitments to originate loans
held-for-sale of $69.9 million.
(2) Unused
lines of credit relate primarily to
home equity lines of
credit.
In
addition to the contractual obligations previously discussed, we have
liabilities for gross unrecognized tax benefits and interest and penalties
related to uncertain tax positions as well as contingent liabilities related to
assets sold with recourse and standby letters of credit. These
liabilities and contingent liabilities as of March 31, 2009 have not changed
significantly from December 31, 2008.
For
further information regarding our off-balance sheet arrangements and contractual
obligations, see Part II, Item 7, “MD&A,” in our 2008 Annual Report on Form
10-K.
Comparison
of Financial Condition as of March 31, 2009 and December 31, 2008 and Operating
Results for the Three Months Ended March 31, 2009 and 2008
Financial
Condition
Total
assets decreased $577.3 million to $21.40 billion at March 31, 2009, from $21.98
billion at December 31, 2008. The decrease in total assets primarily
reflects decreases in securities and loans receivable.
Our total
loan portfolio decreased $290.6 million to $16.42 billion at March 31, 2009,
from $16.71 billion at December 31, 2008. This decrease was primarily
the result of the levels of repayments outpacing our mortgage loan origination
and purchase volume during the three months ended March 31, 2009, coupled with
an increase of $30.2 million in the allowance for loan losses to $149.2 million
at March 31, 2009, from $119.0 million at December 31, 2008. For
additional information on the allowance for loan losses, see “Provision for Loan
Losses” and “Asset Quality.”
Mortgage
loans, net, decreased $288.7 million to $16.08 billion at March 31, 2009, from
$16.37 billion at December 31, 2008. This decrease was primarily due
to decreases in our one-to-four family, multi-family and commercial real estate
mortgage loan portfolios. Mortgage loan repayments decreased to
$636.4 million for the three months ended March 31, 2009, from $1.13 billion for
the three months ended March 31, 2008, primarily due to significantly elevated
levels of residential mortgage loan prepayments from refinance activity during
the 2008 first quarter resulting from a rapid decline in interest rates during
that period. Gross mortgage loans originated and purchased for
portfolio during the three months ended March 31, 2009 totaled $391.9 million,
of which $342.9 million were originations and $49.0 million were
purchases. This compares to gross mortgage loans originated and
purchased for portfolio during the three months ended March 31, 2008 totaling
$704.9 million, of which $646.7 million were originations and $58.2 million were
purchases. In addition, we originated loans
held-for-sale
totaling
$80.8 million during the three months ended March 31, 2009 and $35.9 million
during the three months ended March 31, 2008.
Our
mortgage loan portfolio, as well as our originations and purchases, continue to
consist primarily of one-to-four family mortgage loans. Our
one-to-four family mortgage loans decreased $192.3 million to $12.16 billion at
March 31, 2009, from $12.35 billion at December 31, 2008, and represented 74.6%
of our total loan portfolio at March 31, 2009. The decrease was
primarily the result of the levels of repayments which outpaced our originations
and purchases during the three months ended March 31,
2009. One-to-four family mortgage loan originations and purchases for
portfolio totaled $382.5 million for the three months ended March 31, 2009 and
$637.6 million for the three months ended March 31, 2008. The 2009
first quarter one-to-four family mortgage loan origination and purchase volume
was negatively affected by significant fallout from our mortgage loan
application pipeline due to, among other things, the fact that potential
borrowers are not qualifying under our strict underwriting guidelines,
particularly with respect to requirements for maximum loan-to-value
ratios. Further impacting one-to-four family originations is the
expanded conforming loan limits resulting in more borrowers opting for
thirty-year fixed rate mortgages which we do not retain for
portfolio. During the three months ended March 31, 2009, the
loan-to-value ratio of our one-to-four family mortgage loan originations and
purchases for portfolio, at the time of origination or purchase, averaged
approximately 55% and the loan amount averaged approximately
$730,000.
Our
multi-family mortgage loan portfolio decreased $74.4 million to $2.84 billion at
March 31, 2009, from $2.91 billion at December 31, 2008. Our
commercial real estate loan portfolio decreased $20.4 million to $920.7 million
at March 31, 2009, from $941.1 million at December 31,
2008. Multi-family and commercial real estate loan originations
totaled $9.4 million for the three months ended March 31, 2009 and $67.2 million
for the three months ended March 31, 2008. We do not believe the
current real estate market, economic environment and competitive pricing support
aggressively pursuing multi-family and commercial real estate loans given the
additional risks associated with this type of lending.
Securities
decreased $354.7 million to $3.68 billion at March 31, 2009, from $4.04 billion
at December 31, 2008. This decrease was primarily the result of
principal payments received of $288.3 million, sales of $89.3 million and the
$5.3 million OTTI charge previously discussed,
partially offset by a
net increase of $27.3 million in the fair value of our securities
available-for-sale. For additional information regarding our
securities portfolio and the OTTI charge, see Note 2 of “Notes to Consolidated
Financial Statements,” in Item 1, “Financial Statements (Unaudited).” At March
31, 2009, our securities portfolio was comprised primarily of fixed rate REMIC
and CMO securities. The amortized cost of our fixed rate REMICs and
CMOs totaled $3.62 billion at March 31, 2009 and had a weighted average current
coupon of 4.30%, a weighted average collateral coupon of 5.70% and a weighted
average life of 1.7 years.
Deposits
increased $149.3 million to $13.63 billion at March 31, 2009, from $13.48
billion at December 31, 2008, due to increases in all deposit accounts, except
Liquid CDs which decreased slightly. The increase in deposits
reflects the diminished intense competition for core community deposits which we
experienced during 2008. NOW and demand deposit accounts increased
$62.9 million since December 31, 2008 to $1.53 billion at March 31,
2009. Savings accounts increased $57.6 million since December 31,
2008 to $1.89 billion at March 31, 2009. Money market accounts
increased $19.2 million since December 31, 2008 to $308.4 million at March 31,
2009. Certificates of deposit increased $13.9 million since December
31, 2008 to $8.92 billion at March 31, 2009. Liquid CDs decreased
$4.3 million since December 31, 2008 to $977.4 million at March 31,
2009.
Total
borrowings, net, decreased $827.9 million to $6.14 billion at March 31, 2009,
from $6.97 billion at December 31, 2008. The decrease in total
borrowings was primarily the result of deposit growth and cash flows from
mortgage loan and securities repayments exceeding mortgage loan originations and
purchases which enabled us to repay a portion of our matured
borrowings. For additional information, see “Liquidity and Capital
Resources.”
Stockholders’
equity increased $19.0 million to $1.20 billion at March 31, 2009, from $1.18
billion at December 31, 2008. The increase in stockholders’ equity
was due to a decrease in accumulated other comprehensive loss of $18.7 million,
primarily due to a net unrealized gain on securities, net income of $8.8 million
and stock-based compensation and the allocation of shares held by the employee
stock ownership plan, or ESOP, of $4.1 million. These increases were
partially offset by dividends declared of $11.9 million.
Results
of Operations
General
Net
income for the three months ended March 31, 2009 decreased $20.1 million to $8.8
million, from $28.9 million for the three months ended March 31,
2008. Diluted earnings per common share decreased to $0.10 per share
for the three months ended March 31, 2009, from $0.32 per share for the three
months ended March 31, 2008. Return on average assets decreased to
0.16% for the three months ended March 31, 2009, from 0.54% for the three months
ended March 31, 2008. Return on average stockholders’ equity
decreased to 2.96% for the three months ended March 31, 2009, from 9.46% for the
three months ended March 31, 2008. Return on average tangible
stockholders’ equity decreased to 3.50% for the three months ended March 31,
2009, from 11.15% for the three months ended March 31, 2008. The
decreases in these returns were primarily due to the decrease in net
income.
Our
results of operations for the three months ended March 31, 2009 include a $5.3
million, before-tax ($3.4 million, after-tax), OTTI charge to write-off the
remaining cost basis of our investment in two issues of Freddie Mac perpetual
preferred securities. This charge reduced diluted earnings per common
share by $0.04 per share for the three months ended March 31,
2009. This charge also reduced our return on average assets by 7
basis points, return on average stockholders’ equity by 115 basis points, and
return on average tangible stockholders’ equity by 137 basis
points. For further discussion of the OTTI charge, see Note 2 of
“Notes to Consolidated Financial Statements” in Item 1, “Financial Statements
(Unaudited).”
Net Interest
Income
Net
interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
primarily upon the volume of interest-earning assets and interest-bearing
liabilities and the corresponding interest rates earned or paid. Our net
interest income is significantly impacted by changes in interest rates and
market yield curves and their related impact on cash flows. See Item
3, “Quantitative and Qualitative Disclosures About Market Risk,” for further
discussion of the potential impact of changes in interest rates on our results
of operations.
For the
three months ended March 31, 2009, net interest income increased $30.9 million
to $111.7 million, from $80.8 million for the three months ended March 31,
2008. The net interest margin increased to 2.16% for the three months
ended March 31, 2009, from 1.57% for the three months ended March 31,
2008. The net interest rate spread increased to 2.07% for the
three
months
ended March 31, 2009, from 1.46% for the three months ended March 31,
2008. The average balance of net interest-earning assets decreased
$39.6 million to $561.5 million for the three months ended March 31, 2009, from
$601.1 million for the three months ended March 31, 2008.
The
increases in net interest income, the net interest margin and the net interest
rate spread for the three months ended March 31, 2009, compared to the three
months ended March 31, 2008, were due to a decrease in interest expense,
partially offset by a decrease in interest income. The decrease in
interest expense for the three months ended March 31, 2009, compared to the
three months ended March 31, 2008, was primarily due to decreases in the average
costs of certificates of deposit, borrowings and Liquid CDs, coupled with
decreases in the average balances of borrowings and Liquid CDs, partially offset
by an increase in the average balance of certificates of deposit. The
decrease in interest income for the three months ended March 31, 2009, compared
to the three months ended March 31, 2008, was primarily due to decreases in the
average balances of mortgage-backed and other securities and multi-family,
commercial real estate and construction loans and decreases in the average
yields on consumer and other loans, FHLB-NY stock and multi-family, commercial
real estate and construction loans, coupled with an increase in non-performing
loans, partially offset by an increase in the average balance of one-to-four
family mortgage loans.
The
changes in average interest-earning assets and interest-bearing liabilities and
their related yields and costs are discussed in greater detail under “Interest
Income” and “Interest Expense.”
Analysis of Net Interest
Income
The
following table sets forth certain information about the average balances of our
assets and liabilities and their related yields and costs for the three months
ended March 31, 2009 and 2008. Average yields are derived by dividing
income by the average balance of the related assets and average costs are
derived by dividing expense by the average balance of the related liabilities,
for the periods shown. Average balances are derived from average
daily balances. The yields and costs include amortization of fees,
costs, premiums and discounts which are considered adjustments to interest
rates.
|
|
For the Three Months Ended March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
(Dollars in Thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
12,373,027
|
|
|
$
|
162,940
|
|
|
|
5.27
|
%
|
|
$
|
11,621,739
|
|
|
$
|
153,598
|
|
|
|
5.29
|
%
|
Multi-family,
commercial
real
estate and construction
|
|
|
3,862,820
|
|
|
|
56,614
|
|
|
|
5.86
|
|
|
|
4,005,674
|
|
|
|
60,315
|
|
|
|
6.02
|
|
Consumer
and other loans (1)
|
|
|
340,389
|
|
|
|
2,678
|
|
|
|
3.15
|
|
|
|
356,057
|
|
|
|
5,432
|
|
|
|
6.10
|
|
Total
loans
|
|
|
16,576,236
|
|
|
|
222,232
|
|
|
|
5.36
|
|
|
|
15,983,470
|
|
|
|
219,345
|
|
|
|
5.49
|
|
Mortgage-backed
and
other
securities (2)
|
|
|
3,884,464
|
|
|
|
43,104
|
|
|
|
4.44
|
|
|
|
4,296,912
|
|
|
|
47,893
|
|
|
|
4.46
|
|
Federal
funds sold and
repurchase
agreements
|
|
|
29,451
|
|
|
|
16
|
|
|
|
0.22
|
|
|
|
94,168
|
|
|
|
636
|
|
|
|
2.70
|
|
FHLB-NY
stock
|
|
|
193,887
|
|
|
|
1,686
|
|
|
|
3.48
|
|
|
|
196,115
|
|
|
|
4,222
|
|
|
|
8.61
|
|
Total
interest-earning assets
|
|
|
20,684,038
|
|
|
|
267,038
|
|
|
|
5.16
|
|
|
|
20,570,665
|
|
|
|
272,096
|
|
|
|
5.29
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
853,628
|
|
|
|
|
|
|
|
|
|
|
|
784,963
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
21,722,817
|
|
|
|
|
|
|
|
|
|
|
$
|
21,540,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
1,849,591
|
|
|
|
1,847
|
|
|
|
0.40
|
|
|
$
|
1,874,158
|
|
|
|
1,888
|
|
|
|
0.40
|
|
Money
market
|
|
|
294,873
|
|
|
|
679
|
|
|
|
0.92
|
|
|
|
323,951
|
|
|
|
804
|
|
|
|
0.99
|
|
NOW
and demand deposit
|
|
|
1,468,953
|
|
|
|
278
|
|
|
|
0.08
|
|
|
|
1,446,491
|
|
|
|
312
|
|
|
|
0.09
|
|
Liquid
CDs
|
|
|
979,723
|
|
|
|
4,977
|
|
|
|
2.03
|
|
|
|
1,424,505
|
|
|
|
14,493
|
|
|
|
4.07
|
|
Total
core deposits
|
|
|
4,593,140
|
|
|
|
7,781
|
|
|
|
0.68
|
|
|
|
5,069,105
|
|
|
|
17,497
|
|
|
|
1.38
|
|
Certificates
of deposit
|
|
|
8,999,236
|
|
|
|
82,979
|
|
|
|
3.69
|
|
|
|
7,892,672
|
|
|
|
92,706
|
|
|
|
4.70
|
|
Total
deposits
|
|
|
13,592,376
|
|
|
|
90,760
|
|
|
|
2.67
|
|
|
|
12,961,777
|
|
|
|
110,203
|
|
|
|
3.40
|
|
Borrowings
|
|
|
6,530,207
|
|
|
|
64,601
|
|
|
|
3.96
|
|
|
|
7,007,827
|
|
|
|
81,107
|
|
|
|
4.63
|
|
Total
interest-bearing liabilities
|
|
|
20,122,583
|
|
|
|
155,361
|
|
|
|
3.09
|
|
|
|
19,969,604
|
|
|
|
191,310
|
|
|
|
3.83
|
|
Non-interest-bearing
liabilities
|
|
|
410,152
|
|
|
|
|
|
|
|
|
|
|
|
348,711
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
20,532,735
|
|
|
|
|
|
|
|
|
|
|
|
20,318,315
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
1,190,082
|
|
|
|
|
|
|
|
|
|
|
|
1,222,464
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders'
equity
|
|
$
|
21,722,817
|
|
|
|
|
|
|
|
|
|
|
$
|
21,540,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
rate
spread (3)
|
|
|
|
|
|
$
|
111,677
|
|
|
|
2.07
|
%
|
|
|
|
|
|
$
|
80,786
|
|
|
|
1.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
interest
margin (4)
|
|
$
|
561,455
|
|
|
|
|
|
|
|
2.16
|
%
|
|
$
|
601,061
|
|
|
|
|
|
|
|
1.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets
to
interest-bearing liabilities
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
(1)
|
Mortgage
loans and consumer and other loans include loans held-for-sale and
non-performing loans and exclude the allowance for loan
losses.
|
(2)
|
Securities
available-for-sale are included at average amortized
cost.
|
(3)
|
Net
interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
|
(4)
|
Net
interest margin represents net interest income divided by average
interest-earning assets.
|
Rate/Volume
Analysis
The
following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category with
respect to (1) the changes attributable to changes in volume (changes in volume
multiplied by prior rate), (2) the changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (3) the net
change. The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate.
|
|
Three
Months Ended March 31, 2009
|
|
|
|
Compared
to
|
|
|
|
Three Months Ended March 31,
2008
|
|
|
|
Increase (Decrease)
|
|
(In Thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
9,924
|
|
|
$
|
(582
|
)
|
|
$
|
9,342
|
|
Multi-family,
commercial
real
estate and construction
|
|
|
(2,121
|
)
|
|
|
(1,580
|
)
|
|
|
(3,701
|
)
|
Consumer
and other loans
|
|
|
(230
|
)
|
|
|
(2,524
|
)
|
|
|
(2,754
|
)
|
Mortgage-backed
and other securities
|
|
|
(4,575
|
)
|
|
|
(214
|
)
|
|
|
(4,789
|
)
|
Federal
funds sold and
repurchase
agreements
|
|
|
(265
|
)
|
|
|
(355
|
)
|
|
|
(620
|
)
|
FHLB-NY stock
|
|
|
(47
|
)
|
|
|
(2,489
|
)
|
|
|
(2,536
|
)
|
Total
|
|
|
2,686
|
|
|
|
(7,744
|
)
|
|
|
(5,058
|
)
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
(41
|
)
|
Money
market
|
|
|
(70
|
)
|
|
|
(55
|
)
|
|
|
(125
|
)
|
NOW
and demand deposit
|
|
|
5
|
|
|
|
(39
|
)
|
|
|
(34
|
)
|
Liquid
CDs
|
|
|
(3,653
|
)
|
|
|
(5,863
|
)
|
|
|
(9,516
|
)
|
Certificates
of deposit
|
|
|
11,896
|
|
|
|
(21,623
|
)
|
|
|
(9,727
|
)
|
Borrowings
|
|
|
(5,285
|
)
|
|
|
(11,221
|
)
|
|
|
(16,506
|
)
|
Total
|
|
|
2,852
|
|
|
|
(38,801
|
)
|
|
|
(35,949
|
)
|
Net change in net
interest income
|
|
$
|
(166
|
)
|
|
$
|
31,057
|
|
|
$
|
30,891
|
|
Interest
Income
Interest
income decreased $5.1 million to $267.0 million for the three months ended March
31, 2009, from $272.1 million for the three months ended March 31, 2008,
primarily due to a decrease in the average yield on interest-earning assets to
5.16% for the three months ended March 31, 2009, from 5.29% for the three months
ended March 31, 2008, partially offset by an increase of $113.4 million in the
average balance of interest-earning assets to $20.68 billion for the three
months ended March 31, 2009, from $20.57 billion for the three months ended
March 31, 2008. The decrease in the average yield on interest-earning
assets was primarily the result of decreases in the average yields on consumer
and other loans, FHLB-NY stock and multi-family, commercial real estate and
construction loans. The increase in the average balance of
interest-earning assets was primarily due to an increase in the average balance
of one-to-four family mortgage loans, partially offset by decreases in the
average balances of mortgage-backed and other securities and multi-family,
commercial real estate and construction loans.
Interest
income on one-to-four family mortgage loans increased $9.3 million to $162.9
million for the three months ended March 31, 2009, from $153.6 million for the
three months ended March 31, 2008, which was the result of an increase of $751.3
million in the average balance of
such
loans. The increase in the average balance of one-to-four family
mortgage loans was the result of the strong levels of originations and purchases
which outpaced the levels of repayments during 2008. The average
yield on one-to-four family mortgage loans was 5.27% for the three months ended
March 31, 2009 and 5.29% for the three months ended March 31,
2008. The decrease in the average yield was primarily due to new
originations at lower interest rates than the rates on loans repaid during 2008,
the impact of the downward repricing of our ARM loans and the increase in
non-performing loans, substantially offset by a decrease in loan premium
amortization. Net premium amortization on one-to-four family mortgage
loans decreased $4.4 million to $5.3 million for the three months ended March
31, 2009, from $9.7 million for the three months ended March 31,
2008. This decrease reflects the decrease in mortgage loan
prepayments for the three months ended March 31, 2009, compared to the three
months ended March 31, 2008 which were significantly elevated as a result of a
rapid decline in mortgage loan interest rates and increased refinance activity
during the 2008 first quarter.
Interest
income on multi-family, commercial real estate and construction loans decreased
$3.7 million to $56.6 million for the three months ended March 31, 2009, from
$60.3 million for the three months ended March 31, 2008, which was primarily the
result of a decrease of $142.9 million in the average balance of such loans,
coupled with a decrease in the average yield to 5.86% for the three months ended
March 31, 2009, from 6.02% for the three months ended March 31,
2008. The decrease in the average balance of multi-family, commercial
real estate and construction loans reflects the levels of repayments which
outpaced the levels of originations over the past year. Our
originations of multi-family, commercial real estate and construction loans have
declined over the past several years due primarily to the competitive market
pricing and our decision to not aggressively pursue such loans under prevailing
market conditions. The decrease in the average yield on multi-family,
commercial real estate and construction loans reflects the increase in
non-performing loans, coupled with a decrease in prepayment
penalties. Prepayment penalties decreased $1.1 million to $504,000
for the three months ended March 31, 2009, from $1.6 million for the three
months ended March 31, 2008.
Interest
income on consumer and other loans decreased $2.7 million to $2.7 million for
the three months ended March 31, 2009, from $5.4 million for the three months
ended March 31, 2008, primarily due to a decrease in the average yield to 3.15%
for the three months ended March 31, 2009, from 6.10% for the three months ended
March 31, 2008, coupled with a decrease of $15.7 million in the average balance
of the portfolio. The decrease in the average yield on consumer and
other loans was primarily the result of a decrease in the average yield on our
home equity lines of credit which are adjustable rate loans which generally
reset monthly and are indexed to the prime rate which decreased 400 basis points
during 2008. Home equity lines of credit represented 92.1% of this
portfolio at March 31, 2009. The decrease in the average balance of
consumer and other loans was primarily the result of our decision to not
aggressively pursue the origination of home equity lines of credit in the
current economic environment, coupled with the impact of our stringent
underwriting standards.
Interest
income on mortgage-backed and other securities decreased $4.8 million to $43.1
million for the three months ended March 31, 2009, from $47.9 million for the
three months ended March 31, 2008. This decrease was primarily the
result of a decrease of $412.4 million in the average balance of the portfolio,
resulting from repayments exceeding securities purchased during 2008, coupled
with a slight decrease in the average yield on mortgage-backed and other
securities to 4.44% for the three months ended March 31, 2009 from 4.46% for the
three months ended March 31, 2008.
Dividend
income on FHLB-NY stock decreased $2.5 million to $1.7 million for the three
months ended March 31, 2009, from $4.2 million for the three months ended March
31, 2008, primarily due to a decrease in the average yield to 3.48% for the
three months ended March 31, 2009, from 8.61% for the three months ended March
31, 2008.
The
decrease in the average yield on FHLB-NY stock was the result of a decrease in
the dividend rate paid by the FHLB-NY during the three months ended March 31,
2009, compared to the three months ended March 31, 2008.
Interest
Expense
Interest
expense decreased $35.9 million to $155.4 million for the three months ended
March 31, 2009, from $191.3 million for the three months ended March 31, 2008,
primarily due to a decrease in the average cost of interest-bearing liabilities
to 3.09% for the three months ended March 31, 2009, from 3.83% for the three
months ended March 31, 2008, partially offset by an increase of $153.0 million
in the average balance of interest-bearing liabilities to $20.12 billion for the
three months ended March 31, 2009, from $19.97 billion for the three months
ended March 31, 2008. The decrease in the average cost of
interest-bearing liabilities was primarily due to decreases in the average costs
of certificates of deposit, Liquid CDs and borrowings. The increase
in the average balance of interest-bearing liabilities was primarily due to an
increase in the average balance of certificates of deposit, partially offset by
decreases in the average balances of borrowings and Liquid CDs.
Interest
expense on deposits decreased $19.4 million to $90.8 million for the three
months ended March 31, 2009, from $110.2 million for the three months ended
March 31, 2008, primarily due to a decrease in the average cost to 2.67% for the
three months ended March 31, 2009, from 3.40% for the three months ended March
31, 2008, partially offset by an increase of $630.6 million in the average
balance of total deposits to $13.59 billion for the three months ended March 31,
2009, from $12.96 billion for the three months ended March 31,
2008. The decrease in the average cost of total deposits was
primarily due to the impact of the decline in short-term interest rates during
2008 on our certificates of deposit and our Liquid CDs which matured and were
replaced at lower interest rates. The increase in the average balance
of total deposits was primarily due to an increase in the average balance of
certificates of deposit, partially offset by a decrease in the average balance
of Liquid CDs.
Interest
expense on certificates of deposit decreased $9.7 million to $83.0 million for
the three months ended March 31, 2009, from $92.7 million for the three months
ended March 31, 2008, primarily due to a decrease in the average cost to 3.69%
for the three months ended March 31, 2009, from 4.70% for the three months ended
March 31, 2008, partially offset by an increase of $1.11 billion in the average
balance. The decrease in the average cost of certificates of deposit
reflects the impact of the decrease in interest rates during 2008 as
certificates of deposit at higher rates matured and were replaced at lower
interest rates. The increase in the average balance of certificates
of deposit was primarily a result of the success of our marketing efforts and
competitive pricing strategies.
Interest
expense on Liquid CDs decreased $9.5 million to $5.0 million for the three
months ended March 31, 2009, from $14.5 million for the three months ended March
31, 2008, primarily due to a decrease in the average cost to 2.03% for the three
months ended March 31, 2009, from 4.07% for the three months ended March 31,
2008, coupled with a decrease of $444.8 million in the average
balance. The decrease in the average cost of Liquid CDs reflects the
decline in short-term interest rates during 2008. The decrease in the
average balance of Liquid CDs was
primarily
a result of our decision to maintain our pricing discipline during 2008 as
short-term interest rates declined.
Interest
expense on borrowings decreased $16.5 million to $64.6 million for the three
months ended March 31, 2009, from $81.1 million for the three months ended March
31, 2008, primarily due to a decrease in the average cost to 3.96% for the three
months ended March 31, 2009, from 4.63% for the three months ended March 31,
2008, coupled with a decrease of $477.6 million in the average
balance. The decrease in the average cost of borrowings reflects the
impact of the decline in interest rates during 2008 on our variable rate
borrowings, coupled with the downward repricing of borrowings which matured and
were refinanced during 2008
.
The decrease in
the average balance of borrowings is the result of deposit growth and cash flows
from mortgage loan and securities repayments exceeding mortgage loan
originations and purchases and securities purchases which enabled us to repay a
portion of our matured borrowings.
Provision for Loan
Losses
We
continue to closely monitor the local and national real estate markets and other
factors related to risks inherent in our loan portfolio. The
continued deterioration of the housing and real estate markets and overall
economy contributed to an increase in our delinquencies, non-performing loans
and net loan charge-offs in the 2009 first quarter. As a
geographically diversified residential lender, we have been affected by negative
consequences arising from the ongoing economic recession and, in particular, a
sharp downturn in the housing industry nationally, as well as economic and
housing industry weaknesses in the New York metropolitan area. We are
particularly vulnerable to a job loss recession. Based on our
evaluation of the issues regarding the continued deterioration of the housing
and real estate markets and overall economy, coupled with the increase in and
composition of our delinquencies, non-performing loans and net loan charge-offs,
we determined that an increase in the allowance for loan losses was warranted at
March 31, 2009.
The
allowance for loan losses was $149.2 million at March 31, 2009 and $119.0
million at December 31, 2008. The provision for loan losses totaled
$50.0 million for the three months ended March 31, 2009 and $4.0 million for the
three months ended March 31, 2008. During 2008 and the first quarter
of 2009, the continued deterioration in the housing and real estate markets, and
increasing weakness in the economy, and, in particular, the unemployment rate,
contributed to increases in our delinquencies, non-performing loans and
charge-offs. These deteriorating market conditions, and related
impact on our portfolio, accelerated significantly during the 2008 fourth
quarter and 2009 first quarter. Accordingly, we increased our
allowance for loan losses, through increasing provisions for loan losses, each
quarter throughout 2008 and the first quarter of 2009. The allowance
for loan losses as a percentage of total loans increased to 0.91% at March 31,
2009, from 0.71% at December 31, 2008, primarily due to the increase in the
allowance for loan losses. The allowance for loan losses as a
percentage of non-performing loans decreased to 44.33% at March 31, 2009, from
49.88% at December 31, 2008, primarily due to the increase in non-performing
loans, partially offset by the increase in the allowance for loan
losses. The increases in non-performing loans during any period are
taken into account when determining the allowance for loan losses because the
allowance coverage percentages we apply to our non-performing loans are higher
than the allowance coverage percentages applied to our performing
loans.
As
previously discussed, we use ratio analyses as a supplemental tool for
evaluating the overall reasonableness of the allowance for loan
losses. The adequacy of the allowance for loan
losses
is
ultimately determined by the actual losses and charges recognized in the
portfolio. Our analysis of loss severity, defined as the ratio of the
difference between the outstanding loan balance plus escrow advances and our net
proceeds on final disposition of the asset (typically the sale of REO) to the
outstanding loan balance plus escrow advances on one-to-four family loans,
during all of 2008 indicates a loss severity of approximately
25%. This analysis reviewed 58 one-to-four family REO sales which
occurred throughout 2008 and included both full documentation loans and reduced
documentation loans in a variety of states with varying years of
origination. A similar analysis of 2008 charge-offs on multi-family
and commercial real estate loans indicates an average loss severity of
approximately 35%. We consider our average multi-family and
commercial real estate loss severity experience as a gauge in evaluating the
overall adequacy of our allowance for loan losses. However, the
uniqueness of each multi-family and commercial real estate loan, particularly
those within New York City, many of which are rent stabilized, is also factored
into our analyses. We also obtain updated estimates of collateral
value on our non-performing multi-family and commercial real estate loans in
excess of $1.0 million. We believe utilizing the loss experience of
the past year is most reflective of the current economic and real estate
downturn rather than our long-term historical experience which we used
previously. The ratio of the allowance for loan losses to
non-performing loans stood at approximately 44% at March 31, 2009, almost double
our average loss severity experience for our mortgage loan portfolios,
indicating that our allowance for loan losses would be more than adequate to
cover potential losses. Additionally, as discussed later,
consideration of our accounting for loans delinquent 180 days or more provides
further insight when analyzing these ratios. We update our loss
analyses quarterly to ensure that our allowance coverage percentages are
adequate and the overall allowance for loan losses is our best estimate of loss
as of a particular point in time.
Although
the ratio of the allowance for loan losses to non-performing loans declined at
March 31, 2009, compared to December 31, 2008, several other, more relevant,
asset quality metrics continued to move directionally consistent with the
increasing trend in our delinquencies reflecting our analyses and views of the
increasing risk in the portfolio; namely, the increase in the total allowance
for loan losses and the ratio of the allowance for loan losses to total
loans. These increases reflect our growing uncertainty of potential
losses in the portfolio due to the adverse economic trends, and have resulted in
an increase in the qualitative component of our allowance for losses over and
above our quantitative metrics.
Additionally,
when analyzing our asset quality trends, consideration must be given to our
accounting for non-performing loans, particularly when reviewing our allowance
for loan losses to non-performing loans ratio. Included in our
non-performing loans are one-to-four family mortgage loans which are 180 days or
more past due. Our primary federal banking regulator, the OTS,
requires us to update our collateral values on one-to-four family mortgage loans
which are 180 days past due. If the estimated fair value of the loan
collateral less estimated selling costs is less than the recorded investment in
the loan, a charge-off of the difference is recorded to reduce the loan to its
fair value less estimated selling costs. Therefore certain losses
inherent in our non-performing one-to-four family loans are being recognized at
180 days of delinquency and accordingly are charged off. The impact
of updating these estimates of collateral value and recognizing any required
charge-offs is to increase charge-offs and reduce the allowance for loan losses
required on these loans. In effect, these loans have been written
down to their fair value less estimated selling costs and the inherent loss has
been recognized. Therefore, when reviewing the allowance for loan
losses as a percentage of non-performing loans, the impact of these charge-offs
should be considered. At March 31, 2009, non-performing loans
included $127.5 million of one-to-four family loans which were 180 days or more
past due which had a
related
allowance for loan losses totaling $6.9 million. Excluding
one-to-four family loans which were 180 days or more past due at March 31, 2009
and their related allowance, our ratio of the allowance for loan losses to
non-performing loans would be approximately 70%, which is more than double
our average loss severity experience for our mortgage loan
portfolios. This compares to our reported ratio of the allowance for
loan losses to non-performing loans at March 31, 2009 of approximately
44%.
We review
our allowance for loan losses on a quarterly basis. Material factors
considered during our quarterly review are our loss experience, the composition
and direction of loan delinquencies and the impact of current economic
conditions. Net loan charge-offs totaled $19.8 million, or
forty-eight basis points of average loans outstanding, annualized, for the three
months ended March 31, 2009, compared to $2.9 million, or seven basis points of
average loans outstanding, annualized, for the three months ended March 31,
2008. The increase in net loan charge-offs was primarily due to
increases in net charge-offs related to one-to-four family and multi-family
mortgage loans. For the three months ended March 31, 2009,
one-to-four family mortgage loan charge-offs totaled $11.9 million and
multi-family mortgage loan charge-offs totaled $8.1 million. Our
non-performing loans, which are comprised primarily of mortgage loans, increased
$98.0 million to $336.6 million, or 2.05% of total loans, at March 31, 2009,
from $238.6 million, or 1.43% of total loans, at December 31,
2008. This increase was primarily due to increases in non-performing
one-to-four family mortgage loans totaling $68.0 million and multi-family
mortgage loans and commercial real estate loans totaling $30.4
million.
We
continue to adhere to prudent underwriting standards. We underwrite
our one-to-four family mortgage loans primarily based upon our evaluation of the
borrower’s ability to pay. We obtain updated estimates of collateral
value for loans when classified or requested by our Asset Classification
Committee, or, in the case of one-to-four family mortgage loans, when such loans
are 180 days delinquent. We monitor property value trends in our
market areas to determine what impact, if any, such trends may have on our
loan-to-value ratios and the adequacy of the allowance for loan
losses. Based on our review of property value trends, including
updated estimates of collateral value on classified loans and related loan
charge-offs, we believe the deterioration in the housing market continues to
have a negative impact on the value of our non-performing loan collateral as of
March 31, 2009.
During
the 2008 fourth quarter, our allowance for loan losses increased $32.7 million
to $119.0 million at December 31, 2008, from $86.3 million at September 30,
2008, and we recorded a provision for loan losses totaling $45.0
million. The significant increase in our allowance for loan losses
and related provision for loan losses in the 2008 fourth quarter reflected the
significant increases in delinquencies, non-performing loans and charge-offs,
coupled with an increase in the unemployment rate to 7.2% for December 2008 and
an increase in job losses which totaled 1.6 million during the 2008 fourth
quarter. In addition, as a result of our 2008 fourth quarter analysis
of our loan loss experience, we further segmented our one-to-four family loan
portfolio by (1) interest-only and amortizing; (2) full documentation and
reduced documentation; and (3) year of origination and modified certain
allowance coverage percentages.
During the 2009 first
quarter, similar to the 2008 fourth quarter trends, we experienced significant
increases in delinquencies, non-performing loans and charge-offs, along with a
further acceleration of job losses which totaled 2.4 million for the 2009 first
quarter and a further increase in the unemployment rate to 8.5% for March
2009. Additionally, as a result of our updated charge-off and loss
analysis, we modified certain allowance coverage percentages during the 2009
first quarter to be more reflective of our current estimates of the amount of
probable inherent losses in our loan portfolio. The combination of
these factors resulted in the
increase
in our allowance for loan losses to $149.2 million at March 31, 2009 and a
provision for loan losses totaling $50.0 million for the 2009 first
quarter.
There are
no material assumptions relied on by management which have not been made
apparent in our disclosures or reflected in our asset quality ratios and
activity in the allowance for loan losses. We believe our allowance
for loan losses has been established and maintained at levels that reflect the
risks inherent in our loan portfolio, giving consideration to the composition
and size of our loan portfolio, delinquencies, charge-off experience,
non-accrual and non-performing loans and the current economic
environment. The balance of our allowance for loan losses represents
management’s best estimate of the probable inherent losses in our loan portfolio
at March 31, 2009 and December 31, 2008.
For
further discussion of the methodology used to determine the allowance for loan
losses, see “Critical Accounting Policies-Allowance for Loan Losses” and for
further discussion of our loan portfolio composition and non-performing loans,
see “Asset Quality.”
Non-Interest
Income
Non-interest
income decreased $6.5 million to $15.9 million for the three months ended March
31, 2009, compared to $22.4 million for the three months ended March 31, 2008,
primarily due to the $5.3 million OTTI charge previously discussed and a
decrease in income on BOLI, partially offset by a gain on sales of securities in
the 2009 first quarter.
Income on
BOLI decreased $2.4 million to $2.0 million for the three months ended March 31,
2009, from $4.4 million for the three months ended March 31, 2008, primarily due
to a reduction in the crediting rate paid on our investment reflecting the
overall decline in market interest rates. During the three months
ended March 31, 2009, proceeds from sales of securities from the
available-for-sale portfolio totaled $91.4 million resulting in gross realized
gains totaling $2.1 million. There were no sales of securities from
the available-for-sale portfolio during the three months ended March 31,
2008.
Non-Interest
Expense
Non-interest
expense increased $5.8 million to $64.0 million for the three months ended March
31, 2009, from $58.2 million for the three months ended March 31,
2008. This increase was primarily due to increases in federal deposit
insurance premiums and compensation and benefits expense. Our
percentage of general and administrative expense to average assets, annualized,
increased to 1.18% for the three months ended March 31, 2009, from 1.08% for the
three months ended March 31, 2008, primarily due to the increase in non-interest
expense.
Federal
deposit insurance premiums increased $3.3 million to $3.9 million for the three
months ended March 31, 2009, from $571,000 for the three months ended March 31,
2008, reflecting the increase in our assessment rate effective January 1, 2009
resulting from the FDIC restoration plan to increase the Deposit Insurance Fund,
or DIF, reserve ratio. The FDIC adopted the plan in response to
significant losses incurred by the DIF due to the failures of a number of banks
and thrifts which resulted in a decline in the DIF reserve ratio below the
minimum reserve ratio of 1.15%. The FDIC’s restoration plan also
includes an additional increase in the assessment rates effective for the 2009
second quarter and the FDIC adopted an interim rule, with request for comment,
imposing a 20 basis point emergency special assessment on June 30, 2009, which
will be collected on September 30, 2009. In addition, during the 2009
first quarter we utilized the
remaining
balance of our FDIC One-Time Assessment Credit to offset a portion of our
deposit insurance assessment. As a result, our federal deposit
insurance premiums will increase further during the remainder of
2009. For a further discussion of the FDIC restoration plan and
proposal, see Part II, Item 1A, “Risk Factors.”
Compensation
and benefits expense increased $2.0 million to $34.0 million for the three
months ended March 31, 2009, from $32.0 million for the three months ended March
31, 2008, primarily due to an increase in the net periodic cost of pension and
other postretirement benefits, partially offset by a decrease in corporate
incentive bonuses. The increase in the net periodic cost of pension and other
postretirement benefits primarily reflects an increase in the amortization of
the net actuarial loss and a decrease in the expected return on plan assets
which are primarily the result of the decrease in the fair value of pension plan
assets resulting from the decline in the equities markets in 2008.
Income Tax
Expense
For the
three months ended March 31, 2009, income tax expense totaled $4.9 million
representing an effective tax rate of 35.6%, compared to $12.1 million for the
three months ended March 31, 2008, representing an effective tax rate of
29.5%. The increase in the effective tax rate for the three months
ended March 31, 2009, compared to the three months ended March 31, 2008,
reflects a reduction in pre-tax book income without a reduction in state and
local taxes and non-deductible expenses, such as ESOP related
expense.
Asset
Quality
One of
our key operating objectives has been and continues to be to maintain a high
level of asset quality. Although the continued deterioration in the
economy and real estate market resulted in an increase in non-performing loans,
we believe our sound underwriting standards for new loan originations have
resulted in our maintaining a low level of non-performing loans relative to the
size of our loan portfolio. Through a variety of strategies,
including, but not limited to, aggressive collection efforts and the marketing
of delinquent and non-performing loans and foreclosed properties, we have been
proactive in addressing problem and non-performing assets which, in turn, has
helped to maintain the strength of our financial condition.
The
composition of our loan portfolio, by property type, has remained relatively
consistent over the last several years. At March 31, 2009, our loan
portfolio was comprised of 75% one-to-four family mortgage loans, 17%
multi-family mortgage loans, 6% commercial real estate loans and 2% other loan
categories. This compares to 74% one-to-four family mortgage loans,
18% multi-family mortgage loans, 6% commercial real estate loans and 2% other
loan categories at December 31, 2008. At March 31, 2009 and December
31, 2008, full documentation loans comprise 80% of our one-to-four family
mortgage loan portfolio and 85% of our total mortgage loan
portfolio.
The
following table provides further details on the composition of our one-to-four
family and multi-family and commercial real estate mortgage loan portfolios in
dollar amounts and in percentages of the portfolio at the dates
indicated.
|
|
At March 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
One-to-four
family:
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only (1)
|
|
$
|
5,352,118
|
|
|
|
44.02
|
%
|
|
$
|
5,501,989
|
|
|
|
44.55
|
%
|
Full
documentation amortizing
|
|
|
4,430,268
|
|
|
|
36.44
|
|
|
|
4,389,618
|
|
|
|
35.54
|
|
Reduced
documentation interest-only (1)(2)
|
|
|
1,845,136
|
|
|
|
15.18
|
|
|
|
1,911,160
|
|
|
|
15.48
|
|
Reduced documentation amortizing
(2)
|
|
|
529,786
|
|
|
|
4.36
|
|
|
|
546,850
|
|
|
|
4.43
|
|
Total one-to-four family
|
|
$
|
12,157,308
|
|
|
|
100.00
|
%
|
|
$
|
12,349,617
|
|
|
|
100.00
|
%
|
Multi-family
and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
3,067,827
|
|
|
|
81.63
|
%
|
|
$
|
3,146,103
|
|
|
|
81.66
|
%
|
Full documentation
interest-only
|
|
|
690,266
|
|
|
|
18.37
|
|
|
|
706,687
|
|
|
|
18.34
|
|
Total multi-family and commercial real
estate
|
|
$
|
3,758,093
|
|
|
|
100.00
|
%
|
|
$
|
3,852,790
|
|
|
|
100.00
|
%
|
(1)
|
Interest-only
loans require the borrower to pay interest only during the first ten years
of the loan term. After the tenth anniversary of the loan,
principal and interest payments are required to amortize the loan over the
remaining loan term. One-to-four family interest-only loans
include interest-only hybrid ARM loans which were underwritten at the
initial note rate, which may have been a discounted rate, totaling $4.21
billion at March 31, 2009 and $4.41 billion at December 31,
2008.
|
(2)
|
One-to-four
family reduced documentation loans include SISA loans totaling $349.5
million at March 31, 2009 and $359.2 million at December 31, 2008 and
Super Streamline loans totaling $34.3 million at March 31, 2009 and $36.9
million at December 31, 2008.
|
We do not
originate negative amortization loans, payment option loans or other loans with
short-term interest-only periods. Additionally, we do not originate
one-year ARM loans. The ARM loans in our portfolio which currently
reprice annually represent hybrid ARM loans (interest-only and amortizing) which
have passed their initial fixed rate period. Prior to 2006 we would
underwrite our one-to-four family interest-only hybrid ARM loans using the
initial note rate, which may have been a discounted rate. In 2006, we
began underwriting our one-to-four family interest-only hybrid ARM loans based
on a fully amortizing loan (in effect, underwriting interest-only hybrid ARM
loans as if they were amortizing hybrid ARM loans). In 2007, we began
underwriting our one-to-four family interest-only hybrid ARM loans at the higher
of the fully indexed rate or the initial note rate. In 2009, we began
underwriting our one-to-four family interest-only and amortizing hybrid ARM
loans at the higher of the fully indexed rate, the initial note rate or
6.00%. Within our one-to-four family mortgage loan portfolio we have
reduced documentation loan products. Reduced documentation loans are
comprised primarily of SIFA (stated income, full asset) loans. To a
lesser extent, our portfolio of reduced documentation loans also includes SISA
(stated income, stated asset) and Super Streamline loans. Reduced
documentation loans include both hybrid ARM loans (interest-only and amortizing)
and fixed rate loans. SIFA and SISA loans require a prospective
borrower to complete a standard mortgage loan application while the Super
Streamline product requires the completion of an abbreviated application and is,
in effect, considered a “no documentation” loan. Effective January
2008 we no longer offer reduced documentation loans.
The
market does not apply a uniform definition of what constitutes “subprime”
lending. Our reference to subprime lending relies upon the “Statement
on Subprime Mortgage Lending” issued by the OTS and the other federal bank
regulatory agencies, or the Agencies, on June 29, 2007, which further references
the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance,
issued by the Agencies by press release dated January 31, 2001. In
the Expanded Guidance, the Agencies indicated that subprime lending does not
refer to individual subprime loans originated and managed, in the ordinary
course of business, as exceptions to prime risk selection
standards. The Agencies recognize that many prime loan portfolios
will contain such accounts. The Agencies also excluded prime loans
that develop credit problems after acquisition and community development loans
from the subprime arena. According to the
Expanded
Guidance, subprime loans are other loans to borrowers which display one or more
characteristics of reduced payment capacity. Five specific criteria,
which are not intended to be exhaustive and are not meant to define specific
parameters for all subprime borrowers and may not match all markets or
institutions’ specific subprime definitions, are set forth, including having a
credit (FICO) score of 660 or below. However, we do not associate a
particular FICO score with our definition of sub-prime
loans. Consistent with the guidance provided by federal bank
regulatory agencies, we consider sub-prime loans to be loans to borrowers with a
credit history containing one or more of the following at the time of
origination: (1) bankruptcy within the last four years; (2) foreclosure within
the last two years; or (3) two 30 day mortgage delinquencies in the last twelve
months. In addition, sub-prime loans generally display the risk
layering of the following features: high debt-to-income ratio (50/50); low or no
cash reserves; current loan-to-value ratios over 90%; 2/28, 3/27 or negative
amortization loan products; or reduced or no documentation loans. Our
underwriting standards would generally preclude us from originating loans to
borrowers with a credit history containing a bankruptcy within the last four
years, a foreclosure within the last two years or two 30 day mortgage
delinquencies in the last twelve months. Based upon the definition
and exclusions described above, we are a prime lender. Within our
portfolio of one-to-four family mortgage loans, we have loans to borrowers who
had FICO scores of 660 or below at the time of origination. However, as a
portfolio lender we underwrite our loans considering all credit criteria, as
well as collateral value, and do not base our underwriting decisions solely on
FICO scores. Based on our underwriting criteria, particularly the
average loan-to-value ratios at origination, we consider our loans to borrowers
with FICO scores of 660 or below at origination to be prime loans.
Although
FICO scores are considered as part of our underwriting process, they have not
always been recorded on our mortgage loan system and are not available for all
of the one-to-four family mortgage loans on our mortgage loan
system. However, substantially all of our one-to-four family mortgage
loans originated since March 2005 have credit scores available on our mortgage
loan system. At March 31, 2009, one-to-four family mortgage loans
which had FICO scores available on our mortgage loan system totaled $10.09
billion, or 83% of our total one-to-four family mortgage loan portfolio, of
which $606.9 million, or 6%, had FICO scores of 660 or below at the date of
origination. At December 31, 2008, one-to-four family mortgage loans
which had FICO scores available on our mortgage loan system totaled $10.15
billion, or 82% of our total one-to-four family mortgage loan portfolio, of
which $621.3 million, or 6%, had FICO scores of 660 or below at the date of
origination.
We do
not have FICO scores recorded on our mortgage loan system for 17% of our
one-to-four family mortgage loans at March 31, 2009 and 18% of our one-to-four
family mortgage loans at December 31, 2008.
Consistent with our
one-to-four family mortgage loan portfolio composition, substantially all of our
loans to borrowers with known FICO scores of 660 or below are hybrid ARM
loans. Of these loans, 75% are interest-only and 25% are amortizing
at March 31, 2009 and December 31, 2008. In addition, at March 31,
2009, 67% of our loans to borrowers with known FICO scores of 660 or below were
full documentation loans and 33% were reduced documentation loans and at
December 31, 2008, 66% of our loans to borrowers with known FICO scores of 660
or below were full documentation loans and 34% were reduced documentation loans.
We believe the aforementioned loans, when originated, were amply collateralized
and otherwise conformed to our prime lending standards and do not present a
greater risk of loss or other asset quality risk relative to comparable loans in
our portfolio to other borrowers with higher credit scores. Of our
one-to-four family mortgage loans without a FICO score available on our mortgage
loan system at March 31, 2009 and December 31, 2008, 63% are amortizing hybrid
ARM loans, 28% are interest-only hybrid ARM loans and 9% are amortizing fixed
rate loans. In addition, 78%
of such loans at March
31, 2009 are full documentation loans and 22% are reduced
documentation
loans
and 79%
of such loans at
December 31, 2008 are full documentation loans and 21% are reduced documentation
loans.
Non-Performing
Assets
The
following table sets forth information regarding non-performing assets at the
dates indicated.
|
|
At
March 31,
|
|
|
At
December 31,
|
|
(Dollars in Thousands)
|
|
2009
|
|
|
2008
|
|
Non-accrual
delinquent mortgage loans
|
|
$
|
332,977
|
|
|
$
|
236,366
|
|
Non-accrual
delinquent consumer and other loans
|
|
|
2,370
|
|
|
|
2,221
|
|
Mortgage loans delinquent 90 days or more and
still accruing interest (1)
|
|
|
1,227
|
|
|
|
33
|
|
Total
non-performing loans
|
|
|
336,574
|
|
|
|
238,620
|
|
REO, net (2)
|
|
|
30,173
|
|
|
|
25,481
|
|
Total non-performing assets
|
|
$
|
366,747
|
|
|
$
|
264,101
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans
|
|
|
2.05
|
%
|
|
|
1.43
|
%
|
Non-performing
loans to total assets
|
|
|
1.57
|
|
|
|
1.09
|
|
Non-performing
assets to total assets
|
|
|
1.71
|
|
|
|
1.20
|
|
Allowance
for loan losses to non-performing loans
|
|
|
44.33
|
|
|
|
49.88
|
|
Allowance
for loan losses to total loans
|
|
|
0.91
|
|
|
|
0.71
|
|
(1)
|
Mortgage
loans delinquent 90 days or more and still accruing interest consist
primarily of loans delinquent 90 days or more as to their maturity date
but not their interest due.
|
(2)
|
REO
is net of allowance for losses totaling $2.6 million at March 31, 2009 and
$2.0 million at December 31,
2008.
|
Total
non-performing assets increased $102.6 million to $366.7 million at March 31,
2009, from $264.1 million at December 31, 2008. Non-performing loans,
the most significant component of non-performing assets, increased $98.0 million
to $336.6 million at March 31, 2009, from $238.6 million at December 31,
2008. These increases were primarily due to an increase of $68.0
million in non-performing one-to-four family mortgage loans, coupled with an
increase of $30.4 million in non-performing multi-family and commercial real
estate mortgage loans. The continued deterioration of the housing and
real estate markets during 2008 and the first quarter of 2009, as well as the
overall weakness in the economy, particularly rising unemployment, continued to
contribute to an increase in our non-performing loans. The increase
in non-performing one-to-four family mortgage loans reflects a greater
concentration in non-performing reduced documentation loans. Reduced
documentation loans represent only 20% of the one-to-four family mortgage loan
portfolio, yet represent 60% of non-performing one-to-four family mortgage loans
at March 31, 2009. The ratio of non-performing loans to total loans
increased to 2.05% at March 31, 2009, from 1.43% at December 31,
2008. The ratio of non-performing assets to total assets increased to
1.71% at March 31, 2009, from 1.20% at December 31,
2008.
During
the three months ended March 31, 2009, we sold $12.0 million of delinquent and
non-performing mortgage loans, primarily multi-family mortgage
loans. The sale of these loans did not have a material impact on our
non-performing loans, non-performing assets and related ratios at March 31,
2009.
The
following table provides further details on the composition of our
non-performing one-to-four family and multi-family and commercial real estate
mortgage loans in dollar amounts and percentages of the portfolio, at the dates
indicated.
|
|
At March 31, 2009
|
|
At December 31, 2008
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
of
|
|
|
|
of
|
|
(Dollars in Thousands)
|
|
Amount
|
|
Total
|
|
Amount
|
|
Total
|
|
Non-performing
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family:
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only
|
|
$
|
68,909
|
|
|
28.07
|
%
|
$
|
50,636
|
|
|
28.52
|
%
|
Full
documentation amortizing
|
|
|
30,038
|
|
|
12.23
|
|
|
18,565
|
|
|
10.46
|
|
Reduced
documentation interest-only
|
|
|
130,354
|
|
|
53.10
|
|
|
92,863
|
|
|
52.30
|
|
Reduced documentation
amortizing
|
|
|
16,214
|
|
|
6.60
|
|
|
15,478
|
|
|
8.72
|
|
Total one-to-four family
|
|
$
|
245,515
|
|
|
100.00
|
%
|
$
|
177,542
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
59,629
|
|
|
73.20
|
%
|
$
|
43,097
|
|
|
84.35
|
%
|
Full documentation
interest-only
|
|
|
21,830
|
|
|
26.80
|
|
|
7,995
|
|
|
15.65
|
|
Total multi-family and commercial real
estate
|
|
$
|
81,459
|
|
|
100.00
|
%
|
$
|
51,092
|
|
|
100.00
|
%
|
At March
31, 2009, the geographic composition of our non-performing one-to-four family
mortgage loans was relatively consistent with the geographic composition of our
one-to-four family mortgage loan portfolio as detailed in the following
table.
|
|
One-to-Four Family Mortgage Loans
|
|
|
|
At March 31, 2009
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
Non-Performing
|
|
|
|
|
|
|
|
Total
|
|
Total
|
|
Loans
|
|
|
|
|
|
Percent of
|
|
Non-Performing
|
|
Non-Performing
|
|
as Percent of
|
|
(Dollars in Millions)
|
|
Total Loans
|
|
Total Loans
|
|
Loans
|
|
Loans
|
|
State Totals
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
New
York
|
|
$
|
2,875.8
|
|
|
23.7%
|
|
$
|
21.9
|
|
|
8.9
|
%
|
|
|
0.76
|
%
|
|
Illinois
|
|
|
1,309.5
|
|
|
10.8
|
|
|
29.0
|
|
|
11.8
|
|
|
|
2.21
|
|
|
California
|
|
|
1,304.9
|
|
|
10.7
|
|
|
38.4
|
|
|
15.6
|
|
|
|
2.94
|
|
|
Connecticut
|
|
|
1,276.8
|
|
|
10.5
|
|
|
16.8
|
|
|
6.8
|
|
|
|
1.32
|
|
|
New
Jersey
|
|
|
996.6
|
|
|
8.2
|
|
|
27.7
|
|
|
11.3
|
|
|
|
2.78
|
|
|
Virginia
|
|
|
905.4
|
|
|
7.4
|
|
|
24.6
|
|
|
10.0
|
|
|
|
2.72
|
|
|
Maryland
|
|
|
854.5
|
|
|
7.0
|
|
|
30.0
|
|
|
12.3
|
|
|
|
3.51
|
|
|
Massachusetts
|
|
|
838.9
|
|
|
6.9
|
|
|
12.4
|
|
|
5.1
|
|
|
|
1.48
|
|
|
Washington
|
|
|
322.7
|
|
|
2.7
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
Florida
|
|
|
305.3
|
|
|
2.5
|
|
|
22.6
|
|
|
9.2
|
|
|
|
7.40
|
|
|
All other states (1)
|
|
|
1,166.9
|
|
|
9.6
|
|
|
22.1
|
|
|
9.0
|
|
|
|
1.89
|
|
|
Total
|
|
$
|
12,157.3
|
|
|
100.0%
|
|
$
|
245.5
|
|
|
100.0
|
%
|
|
|
2.02
|
%
|
|
(1)
|
Includes
30 states and Washington, D.C.
|
At March
31, 2009, the geographic composition of our non-performing multi-family and
commercial real estate mortgage loans was 70% in the New York metropolitan area,
26% in Florida and 4% in various other states.
We
discontinue accruing interest on loans when they become 90 days delinquent as to
their payment due date. In addition, we reverse all previously
accrued and uncollected interest through a charge to interest
income. While loans are in non-accrual status, interest due is
monitored and income is recognized only to the extent cash is received until a
return to accrual status is warranted.
If all
non-accrual loans at March 31, 2009 and 2008 had been performing in accordance
with their original terms, we would have recorded interest income, with respect
to such loans, of $5.1 million for the three months ended March 31, 2009 and
$1.8 million for the three months ended March 31, 2008. This compares
to actual payments recorded as interest income, with respect to such loans, of
$714,000 for the three months ended March 31, 2009 and $179,000 for the three
months ended March 31, 2008.
We may
from time to time agree to modify the contractual terms of a borrower’s
loan. In cases where such modifications represent a concession to a
borrower experiencing financial difficulty, the modification is considered a
troubled debt restructuring. Loans modified in a troubled debt
restructuring are placed on non-accrual status until we determine that future
collection of principal and interest is reasonably assured, which generally
requires that the borrower demonstrate performance according to the restructured
terms for a period of at least six months. Loans modified in a
troubled debt restructuring which are included in non-accrual loans totaled
$34.7 million at March 31, 2009 and $6.9 million at December 31,
2008. Excluded from non-performing assets are restructured loans that
have complied with the terms of their restructure agreement for a satisfactory
period of time and have, therefore, been returned to performing
status. Restructured accruing loans totaled $1.3 million at March 31,
2009 and $1.1 million at December 31, 2008.
In
addition to non-performing loans, we had $110.0 million of potential problem
loans at March 31, 2009, compared to $84.2 million at December 31,
2008. Such loans include loans which are 60-89 days delinquent as
shown in the following table and certain other internally classified
loans.
Delinquent
Loans
The
following table shows a comparison of delinquent loans at March 31, 2009 and
December 31, 2008. Delinquent loans are reported based on the number
of days the loan payments are past due.
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days or More
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
(Dollars in Thousands)
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
445
|
|
|
$
|
150,869
|
|
|
|
172
|
|
|
$
|
64,664
|
|
|
|
653
|
|
|
$
|
245,515
|
|
Multi-family
|
|
|
57
|
|
|
|
58,070
|
|
|
|
26
|
|
|
|
35,583
|
|
|
|
53
|
|
|
|
66,110
|
|
Commercial
real estate
|
|
|
7
|
|
|
|
4,158
|
|
|
|
3
|
|
|
|
3,405
|
|
|
|
9
|
|
|
|
15,349
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
791
|
|
|
|
5
|
|
|
|
7,230
|
|
Consumer and other loans
|
|
|
90
|
|
|
|
2,805
|
|
|
|
32
|
|
|
|
1,212
|
|
|
|
55
|
|
|
|
2,370
|
|
Total delinquent loans
|
|
|
599
|
|
|
$
|
215,902
|
|
|
|
234
|
|
|
$
|
105,655
|
|
|
|
775
|
|
|
$
|
336,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.31
|
%
|
|
|
|
|
|
|
0.64
|
%
|
|
|
|
|
|
|
2.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
465
|
|
|
$
|
145,989
|
|
|
|
135
|
|
|
$
|
50,749
|
|
|
|
489
|
|
|
$
|
177,542
|
|
Multi-family
|
|
|
64
|
|
|
|
63,015
|
|
|
|
16
|
|
|
|
13,125
|
|
|
|
50
|
|
|
|
50,392
|
|
Commercial
real estate
|
|
|
11
|
|
|
|
16,612
|
|
|
|
4
|
|
|
|
5,123
|
|
|
|
1
|
|
|
|
700
|
|
Construction
|
|
|
1
|
|
|
|
1,133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
7,765
|
|
Consumer and other loans
|
|
|
119
|
|
|
|
3,085
|
|
|
|
45
|
|
|
|
1,065
|
|
|
|
43
|
|
|
|
2,221
|
|
Total delinquent loans
|
|
|
660
|
|
|
$
|
229,834
|
|
|
|
200
|
|
|
$
|
70,062
|
|
|
|
588
|
|
|
$
|
238,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.38
|
%
|
|
|
|
|
|
|
0.42
|
%
|
|
|
|
|
|
|
1.43
|
%
|
Allowance for Loan
Losses
Activity
in the allowance for loan losses is summarized as follows:
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
(In Thousands)
|
|
March 31, 2009
|
|
Balance
at December 31, 2008
|
|
$
|
119,029
|
|
Provision
charged to operations
|
|
|
50,000
|
|
Charge-offs:
|
|
|
|
|
One-to-four
family
|
|
|
(11,920
|
)
|
Multi-family
|
|
|
(8,131
|
)
|
Construction
|
|
|
(334
|
)
|
Consumer
and other loans
|
|
|
(402
|
)
|
Total
charge-offs
|
|
|
(20,787
|
)
|
Recoveries:
|
|
|
|
|
One-to-four
family
|
|
|
697
|
|
Multi-family
|
|
|
197
|
|
Commercial
real estate
|
|
|
27
|
|
Consumer
and other loans
|
|
|
24
|
|
Total
recoveries
|
|
|
945
|
|
Net
charge-offs
|
|
|
(19,842
|
)
|
Balance
at March 31, 2009
|
|
$
|
149,187
|
|
ITEM
3.
Quantitative and Qualitative
Disclosures about Market Risk
As a
financial institution, the primary component of our market risk is interest rate
risk, or IRR. The objective of our IRR management policy is to
maintain an appropriate mix and level of assets, liabilities and off-balance
sheet items to enable us to meet our earnings and/or growth objectives, while
maintaining specified minimum capital levels as required by the OTS, in the case
of Astoria Federal, and as established by our Board of Directors. We
use a variety of analyses to monitor, control and adjust our asset and liability
positions, primarily interest rate sensitivity gap analysis, or gap analysis,
and net interest income sensitivity, or NII sensitivity,
analysis. Additional IRR modeling is done by Astoria Federal in
conformity with OTS requirements.
Gap
Analysis
Gap
analysis measures the difference between the amount of interest-earning assets
anticipated to mature or reprice within specific time periods and the amount of
interest-bearing liabilities anticipated to mature or reprice within the same
time periods. Gap analysis does not indicate the impact of general
interest rate movements on our net interest income because the actual repricing
dates of various assets and liabilities will differ from our estimates and it
does not give consideration to the yields and costs of the assets and
liabilities or the projected yields and costs to replace or retain those assets
and liabilities. Callable features of certain assets and liabilities,
in addition to the foregoing, may also cause actual experience to vary from the
analysis.
The
following table, referred to as the Gap Table, sets forth the amount of
interest-earning assets and interest-bearing liabilities outstanding at March
31, 2009 that we anticipate will reprice or mature in each of the future time
periods shown using certain assumptions based on our historical experience and
other market-based data available to us. The Gap Table includes $2.98
billion of callable borrowings classified according to their maturity dates,
primarily in the more than five years category, which are callable within one
year and at various times thereafter. The
classifications
of callable borrowings according to their maturity dates are based on our
experience with, and expectations of, these types of instruments and the current
interest rate environment. As indicated in the Gap Table, our
one-year cumulative gap at March 31, 2009 was negative 11.42% compared to
negative 19.06% at December 31, 2008. The change in the one-year
cumulative gap is primarily due to an increase in projected securities and
mortgage loan repayments at March 31, 2009, compared to December 31, 2008,
primarily due to increased refinance activity, coupled with a decrease in
projected borrowings maturing and/or repricing at March 31, 2009, compared to
December 31, 2008, primarily due to the repayment of a portion of our matured
borrowings during the three months ended March 31, 2009.
|
|
At March 31, 2009
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
to
|
|
|
to
|
|
|
More than
|
|
|
|
|
(Dollars in Thousands)
|
|
or Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1)
|
|
$
|
4,929,827
|
|
|
$
|
5,666,524
|
|
|
$
|
4,547,979
|
|
|
$
|
535,855
|
|
|
$
|
15,680,185
|
|
Consumer
and other loans (1)
|
|
|
308,638
|
|
|
|
4,311
|
|
|
|
2,517
|
|
|
|
16,445
|
|
|
|
331,911
|
|
Repurchase
agreements
|
|
|
38,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,050
|
|
Securities
available-for-sale
|
|
|
426,951
|
|
|
|
461,367
|
|
|
|
235,175
|
|
|
|
110,638
|
|
|
|
1,234,131
|
|
Securities
held-to-maturity
|
|
|
1,011,304
|
|
|
|
995,589
|
|
|
|
398,017
|
|
|
|
35,096
|
|
|
|
2,440,006
|
|
FHLB-NY stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
183,547
|
|
|
|
183,547
|
|
Total
interest-earning assets
|
|
|
6,714,770
|
|
|
|
7,127,791
|
|
|
|
5,183,688
|
|
|
|
881,581
|
|
|
|
19,907,830
|
|
Net
unamortized purchase premiums
and deferred
costs (2)
|
|
|
35,409
|
|
|
|
38,486
|
|
|
|
31,713
|
|
|
|
3,742
|
|
|
|
109,350
|
|
Net interest-earning assets (3)
|
|
|
6,750,179
|
|
|
|
7,166,277
|
|
|
|
5,215,401
|
|
|
|
885,323
|
|
|
|
20,017,180
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
241,094
|
|
|
|
401,718
|
|
|
|
401,718
|
|
|
|
845,842
|
|
|
|
1,890,372
|
|
Money
market
|
|
|
137,218
|
|
|
|
84,822
|
|
|
|
84,822
|
|
|
|
1,490
|
|
|
|
308,352
|
|
NOW
and demand deposit
|
|
|
108,835
|
|
|
|
217,682
|
|
|
|
217,682
|
|
|
|
985,657
|
|
|
|
1,529,856
|
|
Liquid
CDs
|
|
|
977,387
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
977,387
|
|
Certificates
of deposit
|
|
|
6,781,062
|
|
|
|
1,744,475
|
|
|
|
397,674
|
|
|
|
-
|
|
|
|
8,923,211
|
|
Borrowings, net
|
|
|
949,495
|
|
|
|
2,459,256
|
|
|
|
899,806
|
|
|
|
1,828,866
|
|
|
|
6,137,423
|
|
Total interest-bearing liabilities
|
|
|
9,195,091
|
|
|
|
4,907,953
|
|
|
|
2,001,702
|
|
|
|
3,661,855
|
|
|
|
19,766,601
|
|
Interest sensitivity gap
|
|
|
(2,444,912
|
)
|
|
|
2,258,324
|
|
|
|
3,213,699
|
|
|
|
(2,776,532
|
)
|
|
$
|
250,579
|
|
Cumulative interest sensitivity gap
|
|
$
|
(2,444,912
|
)
|
|
$
|
(186,588
|
)
|
|
$
|
3,027,111
|
|
|
$
|
250,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest sensitivity gap as a percentage of total assets
|
|
|
(11.42
|
)%
|
|
|
(0.87
|
)%
|
|
|
14.14
|
%
|
|
|
1.17
|
%
|
|
|
|
|
Cumulative
net interest-earning assets as a percentage of interest-bearing
liabilities
|
|
|
73.41
|
%
|
|
|
98.68
|
%
|
|
|
118.80
|
%
|
|
|
101.27
|
%
|
|
|
|
|
(1)
|
Mortgage
loans and consumer and other loans include loans held-for-sale and exclude
non-performing loans and the
allowance
for loan losses.
|
(2)
|
Net
unamortized purchase premiums and deferred costs are
prorated.
|
(3)
|
Includes
securities available-for-sale at amortized
cost.
|
NII
Sensitivity Analysis
In
managing IRR, we also use an internal income simulation model for our NII
sensitivity analyses. These analyses measure changes in projected net
interest income over various time periods resulting from hypothetical changes in
interest rates. The interest rate scenarios most commonly analyzed
reflect gradual and reasonable changes over a specified time period, which is
typically one year. The base net interest income projection utilizes
similar assumptions as those reflected in the Gap Table, assumes that cash flows
are reinvested in similar assets and liabilities and that interest rates as of
the reporting date remain constant over the projection period. For
each alternative interest rate scenario, corresponding changes in the cash flow
and repricing assumptions of each financial instrument are made to determine the
impact on net interest income.
Assuming
the entire yield curve was to increase 200 basis points, through quarterly
parallel increments of 50 basis points, our projected net interest income for
the twelve month period beginning April 1, 2009 would decrease by approximately
1.32% from the base projection. At December 31, 2008, in the up 200
basis point scenario, our projected net interest income for the twelve month
period beginning January 1, 2009 would have decreased by approximately 4.37%
from the base projection. The current low interest rate environment
prevents us from performing an income simulation for a decline in interest rates
of the same magnitude and timing as our rising interest rate simulation, since
certain asset yields, liability costs and related indexes are below
2.00%. However, assuming the entire yield curve was to decrease 100
basis points, through quarterly parallel decrements of 25 basis points, our
projected net interest income for the twelve month period beginning April 1,
2009 would decrease by approximately 0.53% from the base
projection. At December 31, 2008, in the down 100 basis point
scenario, our projected net interest income for the twelve month period
beginning January 1, 2009 would have increased by approximately 1.77% from the
base projection. The down 100 basis point scenarios include some
limitations as well since certain indices, yields and costs are already below
1.00%.
Various
shortcomings are inherent in both the Gap Table and NII sensitivity
analyses. Certain assumptions may not reflect the manner in which
actual yields and costs respond to market changes. Similarly,
prepayment estimates and similar assumptions are subjective in nature, involve
uncertainties and, therefore, cannot be determined with
precision. Changes in interest rates may also affect our operating
environment and operating strategies as well as those of our
competitors. In addition, certain adjustable rate assets have
limitations on the magnitude of rate changes over specified periods of
time. Accordingly, although our NII sensitivity analyses may provide
an indication of our IRR exposure, such analyses are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our net interest income and our actual results will
differ. Additionally, certain assets, liabilities and items of income
and expense which may be affected by changes in interest rates, albeit to a much
lesser degree, and which do not affect net interest income, are excluded from
this analysis. These include income from BOLI and changes in the fair
value of MSR. With respect to these items alone, and assuming the
entire yield curve was to increase 200 basis points, through quarterly parallel
increments of 50 basis points, our projected net income for the twelve month
period beginning April 1, 2009 would increase by approximately $4.7
million. Conversely, assuming the entire yield curve was to decrease
100 basis points, through quarterly parallel decrements of 25 basis points, our
projected net income for the twelve month period beginning April 1, 2009 would
decrease by approximately $2.1 million with respect to these items
alone.
For
further information regarding our market risk and the limitations of our gap
analysis and NII sensitivity analysis, see Part II, Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk,” included in our 2008 Annual Report
on Form 10-K.
ITEM 4. Controls and Procedures
George L.
Engelke, Jr., our Chairman and Chief Executive Officer, and Frank E. Fusco, our
Executive Vice President, Treasurer and Chief Financial Officer, conducted an
evaluation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31,
2009. Based upon their evaluation, they each found that our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports we file and submit under the Exchange
Act is recorded, processed, summarized and reported as and when required and
that such information is accumulated and communicated to our management as
appropriate to allow timely decisions regarding required
disclosure.
There
were no changes in our internal controls over financial reporting that occurred
during the three months ended March 31, 2009 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In the
ordinary course of our business, we are routinely made defendant in or a party
to pending or threatened legal actions or proceedings which, in some cases, seek
substantial monetary damages from or other forms of relief against
us. In our opinion, after consultation with legal counsel, we believe
it unlikely that such actions or proceedings will have a material adverse effect
on our financial condition, results of operations or liquidity.
Goodwill
Litigation
We have
been a party to an action against the United States involving an assisted
acquisition made in the early 1980’s and supervisory goodwill accounting
utilized in connection therewith. The trial in this action, entitled
Astoria
Federal
Savings and Loan Association vs. United States
, took place during 2007
before the U.S. Court of Federal Claims. The U.S. Court of Federal
Claims, by decision filed on January 8, 2008, awarded to us $16.0 million in
damages from the U.S. Government. No portion of the $16.0 million
award was recognized in our consolidated financial statements. The
U.S. Government has appealed such decision to the U.S. Court of Appeals for the
Federal Circuit, which appeal is pending. The ultimate outcome of
this action and the timing of such outcome is uncertain and there can be no
assurance that we will benefit financially from such
litigation. Legal expense related to this action has been recognized
as it has been incurred.
McAnaney
Litigation
In 2004,
an action entitled
David
McAnaney and Carolyn McAnaney, individually and on behalf of all others
similarly situated vs. Astoria Financial Corporation, et al.
was
commenced in the U.S. District Court for the Eastern District of New York, or
the District Court. The action, commenced as a class action, alleges
that in connection with the satisfaction of certain mortgage loans made by
Astoria Federal, The Long Island Savings Bank, FSB, which was acquired by
Astoria Federal in 1998, and their related entities, customers were charged
attorney document preparation fees, recording fees and
facsimile
fees allegedly in violation of the federal Truth in Lending Act, the Real Estate
Settlement Procedures Act, or RESPA, the Fair Debt Collection Act, or FDCA, the
New York State Deceptive Practices Act, and alleges actions based upon unjust
enrichment and common law fraud.
Astoria
Federal previously moved to dismiss the amended complaint, which motion was
granted in part and denied in part, dismissing claims based on violations of
RESPA and FDCA. The District Court further determined that class
certification would be considered prior to considering summary
judgment. The District Court, on September 19, 2006, granted the
plaintiff’s motion for class certification. Astoria Federal has
denied the claims set forth in the complaint. Both we and the
plaintiffs subsequently filed motions for summary judgment with the District
Court. The District Court, on September 12, 2007, granted our motion
for summary judgment on the basis that all named plaintiffs’ Truth in Lending
claims are time barred. All other aspects of plaintiffs’ and
defendants’ motions for summary judgment were dismissed without
prejudice. The District Court found the named plaintiffs to be
inadequate class representatives and provided plaintiffs’ counsel an opportunity
to submit a motion for the substitution or intervention of new named
plaintiffs. Plaintiffs’ counsel filed a motion with the District
Court for partial reconsideration of its decision. The District
Court, by order dated January 25, 2008, granted plaintiffs’ motion for partial
reconsideration and again determined that all named plaintiffs’ Truth-in Lending
claims are time barred. Plaintiffs’ counsel subsequently submitted a
motion to intervene or substitute plaintiff proposing a single substitute
plaintiff. On April 18, 2008, we filed with the District Court our
opposition to such motion. The District Court on September 29, 2008
granted the plaintiffs’ motion allowing a new single named plaintiff to be
substituted. The District Court also established a schedule for the
plaintiffs to amend the complaint, for the defendants to respond and for
consideration of summary judgment on the merits. During the fourth
quarter of 2008, the plaintiffs amended their complaint to assert the claim of
the new substitute plaintiff, the defendants answered denying such claims and
both parties cross-moved for summary judgment and are awaiting the District
Court’s decision. We currently do not believe this action will likely
have a material adverse impact on our financial condition or results of
operations. However, no assurance can be given at this time that this
litigation will be resolved amicably, that this litigation will not be costly to
defend, that this litigation will not have an impact on our financial condition
or results of operations or that, ultimately, any such impact will not be
material.
ITEM 1A. Risk Factors
For a
summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk
Factors,” in our 2008 Annual Report on Form 10-K. There are no other
material changes in risk factors relevant to our operations since December 31,
2008 except as discussed below.
Declines
in the market value of our common stock may have a material effect on the value
of our reporting unit which could result in a goodwill impairment charge and
adversely affect our results of operations.
At March
31, 2009, the carrying amount of our goodwill totaled $185.2
million. We performed our annual goodwill impairment test on
September 30, 2008 and determined the estimated fair value of our reporting unit
to be in excess of its carrying amount. Accordingly, as of our annual
impairment test date, there was no indication of goodwill
impairment. We also evaluated goodwill for impairment as of March 31,
2009 and December 31, 2008 due to the decline in our market
capitalization. Based on our evaluations at March 31, 2009 and
December 31, 2008, there was no indication of goodwill
impairment. Our market capitalization continues to be less than our
total stockholders’ equity at April 30, 2009. We considered this and
other factors in our goodwill
impairment
analyses. No assurance can be given that we will not record an
impairment loss on goodwill in a subsequent period. However,
our tangible capital ratio and Astoria Federal’s regulatory capital ratios would
not be affected by this potential non-cash expense since goodwill is not
included in these calculations.
Our
results of operations are affected by economic conditions in the New York
metropolitan area and nationally.
Our
retail banking and a significant portion of our lending business (approximately
42% of our one-to-four family and 93% of our multi-family and commercial real
estate mortgage loan portfolios at March 31, 2009) are concentrated in the New
York metropolitan area, which includes New York, New Jersey and
Connecticut. As a result of this geographic concentration, our
results of operations largely depend upon economic conditions in this area,
although they also depend on economic conditions in other areas.
We are
operating in a challenging and uncertain economic environment, both nationally
and locally. Financial institutions continue to be affected by sharp
declines in the real estate market and constrained financial
markets. Continued declines in real estate values, home sales volumes
and financial stress on borrowers as a result of the ongoing economic recession,
including job losses, could have an adverse effect on our borrowers or their
customers, which could adversely affect our financial condition and results of
operations. In addition, decreases in real estate values could
adversely affect the value of property used as collateral for our
loans. At March 31, 2009, the average loan-to-value ratio of our
mortgage loan portfolio was less than 65% based on current principal balances
and original appraised values. However, no assurance can be given
that the original appraised values are reflective of current market conditions
as we have experienced significant declines in real estate values in all markets
in which we lend.
We have
experienced increases in loan delinquencies and charge-offs in
2009. Our non-performing loans, which are comprised primarily of
mortgage loans, increased $98.0 million to $336.6 million, or 2.05% of total
loans, at March 31, 2009, from $238.6 million, or 1.43% of total loans, at
December 31, 2008. Our net loan charge-offs totaled $19.8 million for
the three months ended March 31, 2009 compared to $12.3 million for the three
months ended December 31, 2008 and $28.9 million for the year ended December 31,
2008. Our provision for loan losses totaled $50.0 million for the
three months ended March 31, 2009, compared to $45.0 million for the three
months ended December 31, 2008 and $69.0 million for the year ended December 31,
2008. As a residential lender, we are particularly vulnerable to the
impact of a severe job loss recession. Significant increases in job
losses and unemployment will have a negative impact on the financial condition
of residential borrowers and their ability to remain current on their mortgage
loans. A continuation or further deterioration in national and local
economic conditions, including an accelerating pace of job losses, particularly
in the New York metropolitan area, could have a material adverse impact on the
quality of our loan portfolio, which could result in further increases in loan
delinquencies, causing a decrease in our interest income as well as an adverse
impact on our loan loss experience, causing an increase in our allowance for
loan losses and related provision and a decrease in net income. Such
deterioration could also adversely impact the demand for our products and
services, and, accordingly, our results of operations.
Changes
in laws, government regulation and monetary policy may have a material effect on
our results of operations.
Financial
institutions have been the subject of significant legislative and regulatory
changes and may be the subject of further significant legislation or regulation
in the future, none of which is within our control. Significant new
laws or regulations or changes in, or repeals of, existing laws or regulations,
including those with respect to federal and state taxation, may cause our
results of operations to differ materially. In addition, the cost and
burden of compliance, over time, have significantly increased and could
adversely affect our ability to operate profitably. Further, federal
monetary policy significantly affects credit conditions for Astoria Federal, as
well as for our borrowers, particularly as implemented through the Federal
Reserve System, primarily through open market operations in U.S. government
securities, the discount rate for bank borrowings and reserve
requirements. A material change in any of these conditions could have
a material impact on Astoria Federal or our borrowers, and therefore on our
results of operations.
On
October 3, 2008, President Bush signed the EESA into law in response to the
financial crises affecting the banking system and financial markets. Pursuant to
the EESA, the Treasury has the authority to, among other things, purchase up to
$700 billion of troubled assets (including mortgages, mortgage-backed securities
and certain other financial instruments) from financial institutions for the
purpose of stabilizing and providing liquidity to the U.S. financial
markets. On October 14, 2008, the Treasury, the Board of Governors of
the Federal Reserve System, or FRB, and the FDIC issued a joint statement
announcing additional steps aimed at stabilizing the financial
markets. First, the Treasury announced the CPP, a $250 billion
voluntary capital purchase program available to qualifying financial
institutions that sell preferred shares to the Treasury (to be funded from the
$700 billion authorized for troubled asset purchases.) Second, the
FDIC announced that its Board of Directors, under the authority to prevent
“systemic risk” in the U.S. banking system, approved the TLGP, which is intended
to strengthen confidence and encourage liquidity in the banking system by
permitting the FDIC to (1) guarantee certain newly issued senior unsecured debt
issued by participating institutions under the Debt Guarantee Program and (2)
fully insure non-interest bearing transaction deposit accounts held at
participating FDIC-insured institutions, regardless of dollar amount, under the
Transaction Account Guarantee Program. Third, to further increase
access to funding for businesses in all sectors of the economy, the FRB
announced further details of its CPFF which provides a broad backstop for the
commercial paper market. We currently participate in the TLGP, but
not the CPP.
On March
23, 2009, the U.S. Treasury, in conjunction with the FDIC and the FRB, announced
the Public-Private Investment Program, or PPIP, to address the challenge of
legacy loans and securities, as part of its efforts to repair balance sheets
throughout the financial system and ensure that credit is available to
households and businesses. The PPIP has two discrete components: (1)
The Legacy Loan Program, which is designed to facilitate the sale of commercial
and residential whole loans and “other assets” currently held by U.S.
banks, and (2) The Legacy Securities Program which is designed to facilitate the
sale of legacy residential mortgage backed securities and commercial mortgage
backed securities initially rated AAA and currently held by Financial
Institutions (as defined under the EESA). The PPIP is intended to
provide opportunities for banks and financial institutions seeking to sell loans
and securities.
On March
4, 2009, the U.S. Treasury announced guidelines for the “Making Home Affordable”
loan modification program. Under the $75 billion program, the U.S.
Treasury, working with other federal agencies such as the FDIC, has undertaken a
comprehensive multi-part strategy to prevent millions of
foreclosures. Among other things, this program intends for the U.S.
Treasury to partner with
financial
institutions and investors to reduce certain homeowners’ monthly mortgage
payments. The program provides mortgage holders and servicers
financial incentives to modify existing first mortgages of certain qualifying
homeowners. Under this program, the U.S. Treasury also shares in
certain costs associated with reductions in monthly payment
amounts. At this time, it is uncertain how beneficial this program
will be to our borrowers or us and, therefore, we have not yet decided whether
we will participate in this program, which is voluntary.
There can
be no assurance, however, as to the actual impact that the foregoing or any
other governmental program will have on the financial markets. The
failure of the financial markets to stabilize and a continuation or worsening of
current financial market conditions could materially and adversely affect our
business, financial condition, results of operations, access to credit or the
trading price of our common stock. In addition, current initiatives
of President Obama’s Administration, the possible enactment of recently proposed
bankruptcy legislation, including “cramdown” provisions, and the current level
of foreclosure activities, may result in increased charge-offs which could
materially and adversely affect our financial condition and results of
operations.
The FDIC
recently adopted a restoration plan that raised the assessment rate schedule,
uniformly across all four risk categories into which the FDIC assigns insured
institutions, by seven basis points (annualized) of insured deposits beginning
on January 1, 2009. Additionally, beginning with the second
quarter of 2009, the initial base assessment rates will increase further ranging
from 12 to 45 basis points depending on an institution’s risk category, with
adjustments resulting in increased assessment rates for institutions with a
significant reliance on secured liabilities and brokered
deposits. The FDIC also adopted an interim rule, with request for
comment, imposing a 20 basis point emergency special assessment on June 30, 2009
which will be collected on September 30, 2009 and allowing the FDIC to impose
possible additional special assessments of up to 10 basis points thereafter to
maintain public confidence in the DIF. If the FDIC determines that
assessment rates should be increased, institutions in all risk categories could
be affected. The FDIC has exercised this authority several times in
the past and could continue to raise insurance assessment rates in the
future. The increased deposit insurance premiums adopted and proposed
by the FDIC will result in a significant increase in our non-interest expense,
which will have a material impact on our results of operations.
We expect
to face increased regulation and supervision of our industry as a result of the
existing financial crisis, and there will be additional requirements and
conditions imposed on us to the extent that we participate in any of the
programs established or to be established by the Treasury or by the federal bank
regulatory agencies. Such additional regulation and supervision may
increase our costs and limit our ability to pursue business
opportunities.
ITEM 2. Unregistered Sales of Equity Securities and Use
of Proceeds
During
the three months ended March 31, 2009, there were no repurchases of our common
stock. Our twelfth stock repurchase plan, approved by our Board of
Directors on April 18, 2007, authorized the purchase of 10,000,000 shares, or
approximately 10% of our common stock outstanding, in open-market or privately
negotiated transactions. At March 31, 2009, a maximum of 8,107,300
shares may yet be purchased under this plan. As of March 31, 2009, we
are not currently repurchasing additional shares of our common
stock.
ITEM 3. Defaults Upon Senior Securities
Not
applicable.
ITEM 4. Submission of Matters to a Vote of Security
Holders
Not
applicable.
ITEM 5. Other Information
Not
applicable.
ITEM 6. Exhibits
See Index
of Exhibits on page 55.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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Astoria
Financial Corporation
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Dated:
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May 8, 2009
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By:
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/s/
Frank E. Fusco
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Frank
E. Fusco
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Executive
Vice President,
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Treasurer
and Chief Financial Officer
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(Principal
Accounting
Officer)
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ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
OF EXHIBITS
Exhibit No.
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Identification of
Exhibit
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10.1
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Restricted
Stock Award Notice and General Terms and Conditions by and between Astoria
Financial Corporation and award recipients utilized in connection with
awards pursuant to the Astoria Financial Corporation 2005 Re-designated,
Amended and Restated Stock Incentive Plan for Officers and
Employees.
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10.2
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Restricted
Stock Award Notice and General Terms and Conditions by and between Astoria
Financial Corporation and award recipients utilized in connection with
awards pursuant to the Astoria Financial Corporation 2007 Non-employee
Director Stock Plan.
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31.1
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Certifications
of Chief Executive Officer.
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31.2
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Certifications
of Chief Financial Officer.
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32.1
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Written
Statement of Chief Executive Officer furnished pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed
filed for purposes of Section 18 of the Exchange Act or otherwise subject
to the liability of that section.
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32.2
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Written
Statement of Chief Financial Officer furnished pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed
filed for purposes of Section 18 of the Exchange Act or otherwise subject
to the liability of that section.
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